Another dark corner of the Financial Services industry.
{{ To see what I mean, consider what recently happened to Mark Armbruster, chief executive of Armbruster Capital Management, a financial adviser in Pittsford, N.Y. His firm manages about $900 million, mainly for individual investors.
As an investment adviser, Armbruster needs to safekeep its clients’ assets at qualified custodians—the firms that process trades, maintain records, and generate account statements and tax reporting. Custodians are often divisions of financial giants like Fidelity Investments or Charles Schwab.
Late last year, according to Armbruster, a Fidelity custody representative said the financial-advisory firm needed to generate at least $90,000 more in annual revenue.
In an email, the Fidelity representative spelled out seven ways Armbruster could make up the shortfall. Several involved what the rep called “asset shift,” or moves into investments run by Fidelity affiliates—which would generate more revenue for the giant firm regardless of whether they were the best option for Armbruster’s clients. [[i.e., move to funds with a higher expense ratio.]] }}
Isn’t that what Prudential got in the kimchee for, years ago? Of course, thanks to lots and lots of lobbyist money, investment advisors are not held to a fiduciary standard, so, seems, conflict of interest is perfectly fine.
Trading fees and other sources of income for custodians have been declining for years. “So the custodians are saying to [advisers], ‘Please do more of the moneymaking things for us,’” says Kitces. “That’s gotten significantly more problematic and challenging over the past few years, and it highlights the pernicious nature of hidden conflicts of interest.”
Cross-selling on steroids - „Product A is no longer profitable enough for us, buy Product B from us as well, … or else“. Isn’t that the stuff expensive anti-trust suits are made of? Or will such unnecessary complications be swept away by DOGE?
{{ The “asset shifts” that Fidelity suggested, says Armbruster, would mean some of his firm’s clients might incur trades that could generate taxable capital gains. Worse, the moves would be motivated not by what was in the best interests of Armbruster’s clients, but by Fidelity’s revenue targets for itself.
“They’re asking us to breach our fiduciary obligations to our clients, which is disturbing and egregious,” says Armbruster. He refused to consider making any of the “asset shifts.”
Fidelity doesn’t encourage its account representatives to share exact revenue targets with the financial advisers who use its custody services, he says.
Another option Fidelity gave Armbruster was an annual custody fee of $375 per account (or a firmwide fee yet to be determined). }}
I’m considering moving my IRA to Fidelity and putting it in one of their “loss leader” zero expense ratio funds. I wonder if that would subject me to a lot of phone calls extolling the income generating magic of an annuity?
Of course. I have 100% sales resistance, so I’m not worried.
We haven’t been enforcing the antitrust laws since Reagan was elected. Though I did see Vanguard got fined $100 million for not warning it’s clients about the potential tax liability of a target date retirement fund in a taxable account.
A previous “thought leader” declared all civil suits by Proles “junk lawsuits”, and started arranging laws to make them more difficult and risky for the Proles to bring.
I miss Mark Haines. Being a lawyer, he knew the truth, and was not too shy to point out some facts, like most civil suits are brought by “JCs”, for patent infringement, copyright infringement, theft of trade secrets, but what is targeted by the POTUS? Suits by Proles.
I’ve considered it. And I haven’t done it. What guarantee is there that in 7 years they don’t change the 0% expense ratio to something that is much higher than that? And at that point, the value has doubled, so if you want to get out, you have to pay some hefty capital gains tax.
[sidebar] Mostly true. Even then there’s a workaround:
Amazon AI deal leaves ‘zombie’ start-up in its wake, whistleblower says
Complaint to regulator claims retail giant’s $400 million license for smart robot system is a ‘reverse acquire’ transaction that merits antitrust scrutiny.
A self-described whistleblower is now arguing to regulators that Amazon played it too close, illegally disguising what was effectively an acquisition because it was liable to be blocked, according to his filing obtained by The Washington Post, which includes an executive’s recorded remarks and previously undisclosed deal documents.
The online retail giant said in August that it had hired three founders and about a quarter of the staff of Covariant AI, an Emeryville, California, start-up that makes neural networking software for warehouse robots. Amazon said it bought a nonexclusive license for the company’s core program, while Covariant itself would live on and pursue other deals.
Cute strategy. Don’t “acquire” the company, just buy a non-exclusive license to use its products, hire the top engineering talent away, leave the shards to die (so there’s no support so no one else can really use the products), absorb any remaining corpse that looks interesting, pretend “Oh, that’s too bad.”