The way that the big investment banks treat their retail customers reminds us of the classic scene from Animal House. No matter how many times they get spanked, the investing public just keeps asking for more.
Today the New York Times details JP Morgan’s practice of “encouraging” their “advisers” to sell JP Morgan’s funds above those of their competitors. Keep in mind, this is something that Morgan Stanley and Citigroup once did, but eventually stopped due to the perceived conflict of interests. If JP Morgan’s advisers truly did have their clients’ best interests in mind, the environment at the bank certainly doesn’t appear to have fostered any sense of responsibility:
While brokers do not receive extra bonuses or commissions on the Chase Strategic Portfolio, some advisers said they had felt pressure to recommend such internal products as part of the intense sales culture. A supervisor in a New Jersey branch recently sent a congratulatory note with the header “KABOOM” to an adviser who had persuaded a client to put $75,000 into the Chase Strategic Portfolio. “Nice to know someone is taking advantage of the best selling day of the week!” he wrote.
JPMorgan also circulates a list of brokers whose clients collectively have with the largest amounts in the Chase Strategic Portfolio. Top advisers have nearly $200 million of assets in the program.
“It was all about the money, not the client,” said Warren Rockmacher, a broker who recently left the company. He said that if he did not persuade a customer to invest in the Chase Strategic Portfolio, a manager would ask him why he had selected something else.
These funds, it’s worth noting, have also been marketed with hypothetical performance numbers in place of actual track records – even when actual track records were available (and were lower than the hypothetical numbers). This isn’t really a new story – it’s one Josh Brown already covered in his book Backstage Wall Street (and revisited again in light of the Times article). But it highlights the problem dealing with the traditional brokerage model – they make money regardless of what happens to their customers. This is a story and a lesson that bears repeating as often and as loudly as necessary until regulatory change steps in to protect customers, or until enough people are aware of the practice that they pull their funds from these money pits.
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