Posted on 03/21/2013 10:51:06 AM PDT by SeekAndFind
Why is it that every current wirehouse advisor says they’re completely open-architecture, while every former wirehouse advisor says they faced pressure to sell proprietary products?
The New York Times ginned up controversy recently with its front-page story, “Selling the Home Brand: A Look Inside an Elite JPMorgan Unit,” which reinforced the view that wirehouses put themselves first and clients second. Now Alicia Munnell (left), director of the Center for Retirement Research at Boston College, picks up the thread.
The trouble started with The Times exposé, which detailed how advisors at JPMorgan Chase & Co. were supposedly pressured to sell the bank’s own higher-fee products. The firm responded that their advisors were permitted to sell third-party products on an open-architecture platform, but some brokers—surprise—said that they faced repercussions for doing so.
As Munnell notes in a piece posted to MarketWatch on Wednesday, the tendency to push high-fee products goes way beyond JPMorgan Chase and was the motive behind the Department of Labor’s 2010 proposals to eliminate 12b-1 fees for anyone who gives advice to holders of individual retirement accounts (IRAs), including banks, insurance companies, RIAs and broker-dealers.
So she calls for a “more direct approach,” one that actually bans actively managed, high-fee funds from any type of account that receives favorable treatment under the Internal Revenue Code to encourage retirement saving.
“Many studies have shown that actively managed funds underperform index funds, even before accounting for the higher fees charged by the former,” Munnell writes. “But broker-sold mutual funds perform worst of all. One estimate is that broker-sold funds underperform average actively-managed stock funds by 23 to 255 basis points a year. Investments in tax-favored accounts should be limited to index funds.”
She goes on to argue that since the government “foregoes considerable revenue” in order to encourage retirement saving, it therefore has “a responsibility to ensure that these accounts are managed in the best interests of participants.”
“Participants have nothing to gain on average from investing in actively managed funds but end up in these investments either through ignorance (in the case of 401(k) plans) or through pressured sales (in the case of IRAs). The high fees associated with actively managed mutual funds are not associated with higher returns. They simply frustrate the policy objective of increased retirement saving.”
Banning actively managed funds from tax-favored plans would also "send a message" to those investing outside these plans that they have little to gain from active management, she concludes, giving advisors like those in the Chase Private Client program a run for their money.
That's the dilemma - what to do with it?
I suspect they'll just progressively tax it away from us here, rather than attempt to pull a direct heist like in Cyprus.
Yes, they will scheme us out of our money. But you talk like they haven’t already gone after private wealth in a million ways. Which I guess is only natural, since what came before seems normal after it already happened. So we treat tax shielded retirement plans or bank accounts like they’re the Rubicon. If fedral gubmint passes this line, it’s civil war! Except there have been Rubicons in the past, and the people did not rise in rebellion. This despite Southerners seceding in part because of tax inequity and many a “revenoor” getting shot in the back for his troubles throughout our history.
As originally written the Constitution forbid direct taxation by the central gubmint. Which is a good idea. But if they ever wanted to grow, as all do, they needed people’s wealth. So they assumed state debts and incorporated national banks, despite there being no such powers delegated. Later they issued “greenbacks” and instituted tge first income tax. But SCOTUS had our back and eventually struck it down. The so-called estate tax, more accurately the death tax, was deliberately aimed at breaking up pivate fortunes. We didn’t care enough, since no one like trust fund babies. Then the income tax came back and we got a new central bank, and we were all doomed.
That’s not all. The feds rubbed salt in our mortal wounds, just for fun. FDR personally took us off the gold standard, confiscated our gold, and arbitrarily set the price of gold each morning according to his whims. Then for decades it was illegal to possess gold, unless it was jewelry or for other nonmonetary use. All so that we’d use continentals, err, greenbacks, err, I mean fed notes, which they used to further sick dry private wealth through constant inflation.
Whatever savings you possess currently is what they’ve allowed you to keep by their good graces.
They already did a direct heist a la Cyprus during the New Deal in taming us off the gold standard. Why does no one remember this, aside from most of us not having been born at the time? It was much worse than the proposed Cyprus raid, actually, considering it ruined a financial system whereas Cypriots must know their savings are part of the corrupt modern international fiat money system.
“It was much worse than the proposed Cyprus raid, actually, considering it ruined a financial system”
Agree. No putting that genie back in the bottle, though (unless, God forbid, there’s a worldwide crash).
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