The Perils Of Peddling Faulty Microwave Ovens

Retail investors historically have had very short memories. I’d crash your computer if I recounted all the scams and cons I’ve seen in the three decades I’ve represented individual investors, yet somehow Wall Street’s systemic fraud and dishonesty never seems to lead to a shortage of customers. Even the dot.com fraudulent research scam didn’t lead to a massive client exodus.

But Wall Street might have exploited its customers one time too many. According to a survey by Prince & Associates, a whopping 81% of investors with $1 million or more of investible assets plan to change investment advisers. An even larger number, 86%, plan to tell other investors to avoid their adviser. A mere 2% of investors plan to recommend their broker to other investors. So much for those client referrals…

Admittedly, not all “investment advisers” are brokers at the big Wall Street firms, but “wealth management” has been one of their major focus areas these past few years. And $1 million in investible assets wouldn’t even get you a meeting with the receptionist at the top-tier multifamily offices.

I suspect one of the tipping points might have been the marketing of auction rate securities, which Wall Street sold as cash equivalents but were in fact quite risky. Amazingly, these securities were aggressively sold to Wall Street’s most wealthy - and profitable — customers. Brokers were under considerable pressure to move those microwave ovens.

One of the few growth businesses in the months ahead will be conflict free multifamily offices with established and unblemished track records serving the interests of their clients. Indeed, marketing tools multifamily offices might want to consider are the state attorney general ARS complaints against the big brokerage firms, such as Massachusetts’ARS lawsuit against Merrill Lynch. These easy-to-understand complaints unquestionably offer some of the most impressive insight into the conflicted workings of Wall Street ever written.