A 2011 SEC study said consumers are often baffled by the distinction between brokers and advisers, who work under different standards,” Dave Michaels Bloomberg News
New York, NY (PRWEB) August 01, 2013
The recent publication of Wall Street in Crisis: A Perfect Storm Looming, prompted the Abernathy Group II Family Office to issue three key questions for investors. The survey, consisting of 250 respondents from the financial services industry, are employed as: traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisers, asset managers and stock brokers.
The results are grim:
- 52 % of respondents felt their competitors engaged in unethical or illegal activity to gain an edge in the market;
- 24 % felt employees at their own company are likely have engaged in misconduct to get ahead;
- 29 % believed that financial services professionals may need to engage in unethical or illegal activity in order to be successful; and, 23 % of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace;
- 26 % believed the compensation plans or bonus structures in place at their companies incentivize employees to compromise ethical standards or violate the law;
- 24 % would likely engage in insider trading to make10 million if they could get away with it;
- 28 % felt the financial services industry does not put the interests of clients first;
- 17 % who felt their leaders were likely to look the other way if they suspected a top performer engaged in insider trading. And, 15 % doubted that leadership, upon learning of a top performer's crime, would report it.
If insiders across the country are as skeptical themselves as these statistics indicate, how is it possible for investors to confidently determine the financial professionals who will be on their side?
“Investors should not be sold a bill of goods,” asserts Brian Luster, co-founder and CEO of the Abernathy Group II Family Office. “When a financial professional is simultaneously able to be both a fiduciary and a salesman, there is no true fiduciary responsibility—it’s legal, but, it’s not truly ethical.”
With no existing uniform code of ethics, it remains unclear how consistent consumer protections could be enacted and enforced, however, their absence comes at a severe price—and it's investors who ultimately pay.
Three essential questions every investor should ask their financial adviser to determine if s/he is working for them, or, on them are:
Will you sign a fiduciary oath? This one is from the National Association of Personal Financial Advisors (NAPFA). While many investors have never seen this, (never mind brought one into every meeting with every financial professional hired) it's an integral step on paving an ethical road with financial relationships. Fiduciary responsibility is not something which should exist only "in the eye of the beholder" -- rather, it is meant to underscore an ethical, good-faith relationship between the investor and the financial adviser.)
How do you earn money? If the response involves the word "commission" or "load" or "incentive", there's likely to be a financial motivation to sell financial products. Salespeople who are paid in this manner may or may not hold dual registration, so, it's important to determine not only who or what pays them, but how they're paid. Fee-only advisers should work on their advisory fee and not be accepting any other monies. Ask for a comprehensive breakdown of all fees; make sure none are hidden in products.
Who/what pays you? While this may seem similar to the advice above, determining if a financial professional is working independently, or, is affiliated with a particular financial institution or product group can be enlightening.
Not sure where to start? Let's connect.
About The Abernathy Group II Family Office:
Steven Abernathy and Brian Luster co-founded The Abernathy Group II Family Office and the country's first Physician Family Office (PFO). The Abernathy Group Family Office sells no products, receives no commissions, and is independent, employee-owned, and governed by its Advisory Board comprised entirely of thought-leading professionals. They are regular contributors to several publications and blogs including The Huffington Post. A recent Wall Street Journal article. . .
The information contained in this article is provided solely for convenience purposes only and all users thereof should be guided accordingly. The Abernathy Group II does not hold itself out as a legal or tax adviser. If you wish to receive a legal opinion or tax advice on the matter(s) in this report please contact our offices and we will refer you to an appropriate legal practitioner.