Showing posts with label shady advisors. Show all posts
Showing posts with label shady advisors. Show all posts

Thursday 5 August 2010

Savers lose out as advisers cash in

Savers lose out as advisers cash in

An “insidious relationship” between financial advisers, investment funds and stockbrokers is costing savers billions of pounds in lost income, it has been alleged.

The close links between different parts of the industry, based on lucrative commission payments, are said to be preventing thousands of people from getting the best deal.
Investors may be unaware that advisers can receive thousands of pounds from their stake and recurring fees in return for referring them to a savings or pension fund.
Others do not know that stockbrokers receive valuable commissions for trading the stocks and shares their funds hold – and can “churn” the fund to make more.
Rosina Lizar, 86, from Manchester, was advised to put her savings of almost £10,000 into a Scottish Mutual Commercial Property Plan in December 2002.
The fund had an initial charge of 17.5 per cent, more than three times the current industry standard of five per cent. This saw £1,750 promptly docked from her stake.
Mrs Lizar was told that the fund, which was being recommended by other advisers at the time, had good prospects of making her large returns. Eight years on, her stake is worth little more than £1,000.
The financial advisers received four per cent commission, worth almost £400, for persuading her to join the fund. They were then entitled to a “trail commission” worth 0.5 per cent of Mrs Lizar’s stake – £50 initially – every year from then on.
Mrs Lizar’s daughter Geraldine Lawton, 60, said: “She had no knowledge of investment and trusted her adviser completely.”
Her new financial adviser, who did not wish to be named, said: “This was disastrous. Someone at that age should have been directed towards simple, low-risk investments protecting her capital. She doesn’t have much.”
Advisers insist they are not swayed by commission. A spokesman for the adviser’s firm said it had “robust systems in place” to ensure customers were given appropriate advice.
“The case has been investigated and at the conclusion of that investigation, a complaint was wholly rejected,” the spokesman said.
The FSA is planning to phase out new commission payments from 2012. But existing trail commissions – estimated to be worth more than £2 billion a year – will continue.
Experts fear advisers will find ways to circumvent new rules. Many advisers are already replacing trail commission with annual “financial health checks”, for which they charge extra fees.
Clive Waller, managing director of CWC Research, said: “There is always a danger for buyers using commission-based advisers. What if the best advice is not to do something? The only safe thing to do is to have upfront fees.”
Alan Miller of SCM, one of the City’s most successful fund managers, said: “There are insidious relationships across these different parts of the industry. Advisers will never recommend the cheapest funds because they don’t pay commission.”
There have also been calls for greater scrutiny of the relationships between fund managers and the stockbrokers they employ to trade the shares held by the fund.
Brokers make money by charging commission on the trades. Investors would hope that the broker chosen by their fund manager would be the one offering the best improvement on the price being quoted by a stock exchange.
However City insiders said this is not always the case. One trader said: “I know some people who only use one broker. Some just use their best mates, some are receiving nice presents. People are human." It is claimed that ski trips and junkets to the Cricket World Cup in the Caribbean and Monaco Grand Prix are regularly offered to clients by brokerage firms.
Other alleged relationships are developed more subtly. Donations on a website to charities nominated by Guillaume Rambourg, a former star fund manager at Gartmore now being investigated by the FSA. Brokers have denied this was an attempt to curry favour.
Mr Miller said: “Customers are saddled with the costs of ‘research’ from brokers, which is bundled into commission and can double trading costs. Why should people pay for what their manager should know already?”
Those in charge of deciding how to invest institutional and company pensions also mingle with executives keen to get control of their money.
Representatives from huge fund groups – including Goldman Sachs and Schroders – paid £1,670 each to meet managers of some of the biggest local authority pensions at last year’s local government pension fund symposium.
Officials controlling the £6.5 billion West Midlands Pension Fund, the £8 billion Greater Manchester Pension Fund and the £2 billion Nottingham County Council all attended this year’s event at the De Vere Dunston Hall in Norfolk. The hotel offered delegates a jacuzzi, steam room and 18-hole golf course on which productive deals could be struck.
A spokesman for Lipper, the respected US financial researchers, said investors in America were better protected in relation to the fees and commissions.
She asked “whether someone else ought to be acting on behalf of investors – a fiduciary responsibility. Such a role is undertaken by a mutual fund’s board of directors in the US, a majority of whom must be independent of the company managing the fund.”

http://www.telegraph.co.uk/finance/personalfinance/pensions/7923488/Savers-lose-out-as-advisers-cash-in.html

Monday 22 December 2008

How to Steer Clear of Shady Advisers

How to Steer Clear of Shady Advisers

By MARY PILON
Bernard Madoff's alleged Ponzi scheme took a devastating toll on scores of victims. But any investor can draw important lessons from the tale of the disappearing $50 billion. Here's a guide to protecting yourself when you choose a financial adviser.
Be wary of guaranteed returns.
Mr. Madoff allegedly wooed many investors by promising consistent returns regardless of market activity. Also be wary about promises of speedy returns. If something sounds too good to be true, it most likely is.
Reputation and referrals aren't enough.
Mr. Madoff was a former Nasdaq Stock Market chairman and fixture on Wall Street -- it's understandable that people felt comfortable with him managing their money. Many investors are happy if they just have an adviser a friend recommends.
But don't make a decision based on the good things you hear.
Check credentials and verify certification with the Financial Industry Regulatory Authority (Finra), which issues licenses for financial advisers.
You should seek out other information, too.
The U.S. Securities and Exchange Commission (sec.gov) lets you search Investment Adviser Public Disclosure forms online, which give information about advisers' business affiliations and any disciplinary actions. Finra also has background information on approximately 660,000 currently registered brokers and 5,100 currently registered securities firms. The information on both the SEC and Finra sites are available at no cost to the public.
Demand transparency.
It's your money, so you have a right to know where it's being invested. Ask lots of questions about your allocation and your money manager's past performance. And set aside time to read through your brokerage statement -- most firms send one a month -- and make sure you're clear on everything documented in it.
Make sure you get a statement from your adviser's firm, not your adviser.
There are claims that Mr. Madoff cooked his books. A firm is less likely to do that, since it's accountable to more parties. Likewise, you should be wary about writing checks directly to your adviser. They should go to a registered investment company.
Get it in writing.
Make sure that both your investments and their explanations are spelled out in writing, for future reference. While you're at it, read the fine print -- and be extremely suspicious if there's no fine print to read.

If you've been a victim of fraud or are suspicious, report it. The SEC has a tip and complaint form on its Web site, sec.gov/complaint.shtml.
Write to Mary Pilon at mary.pilon@wsj.com

http://online.wsj.com/article/SB122981065261124223.html