The mafia would love this arrangement. It gets to rob you and if it is caught your only recourse is a court that is controlled by the mafia. This sounds far-fetched, but this is the way Wall Street operates. It can sell you toxic mortgages and IF it is caught your only recourse is an arbitration process that is controlled by FINRA. In case you don’t know this, FINRA is funded by Wall Street and it is what is called an SRO (Self-Regulatory Organization). That’s right Wall Street regulates itself. The SEC goes along with it because Wall Street special interests control the politicians who control the SEC. Like I said, the mafia would love this arrangement. There is no downside, except fines, if they are caught. And, the payment of fines is a cost of doing business. See The Street’s Due-Process Joke by Jim Tague.
How do they get away with it? The service agreements that you sign limit your recourse to an arbitration process that is controlled by FINRA that is controlled by Wall Street. Does this sound like a stacked deck? You bet it is and there is nothing you can do about it except not buy from their salesmen.
The bigger question is why do you let Wall Street get away with it? One simple answer is you need what they are selling – investment expertise, advice, and services. This is what you see on TV, but this is not what you get. 75% of all the financial experts who sell their products are salesmen who tell you they are experts to facilitate the sale of high and low quality investment products.
I think there is a second more basic reason. Wall Street figured out a long time ago that money is a relationship business. You tend to follow the advice of people you like because you trust people you like. You have trouble believing people you like will rip you off to make more money. Consequently, a top requirement when they recruits salesmen is a friendly personality that masks the real intent of the advisor – maximize revenue from your assets.
Why is a nice advisor such a big risk? If you are like 80% of investors you do not even read the service agreement (contract) that contains the arbitration restriction. You trust your nice, friendly financial advisor who says he will always do what is best for you. Based on assumed trustworthiness there is no reason to read an agreement that is loaded with legal and investment jargon
You better select a real financial expert you can trust. Your recourse is limited if you select the wrong advisor. And, this is just the way Wall Street wants it.
Tell Us What You Think!