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Study Suggests Investment Advisers Often Act in Their Own Interest

Many investment advisers reinforce client behaviors that are in the advisers’ best interest, and fail to discourage financial errors by investors. These findings were reported in a working paper published by the National Bureau of Economic Research. The paper grew out of research at Harvard University, MIT and the University of Hamburg. In the study, auditors went on 284 client visits in which they gathered information from advisers. The auditors presented one of four investment strategies: Chasing returns by attempting to beat the market via identifying industries that performed the best in the recent past; Allocating 30 percent of their portfolio into...

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Top Financial Adviser, Tom Buck, Fired By Merrill Lynch

Thomas J. Buck, a senior vice president of investments at Merrill Lynch, was fired last month due to the company's loss of confidence following Buck's mislabeling a bond trade, failing to disclose key information to a client, and giving inaccurate information to his managers - all according to recent reports. Tom Buck, 61, spent over 33 years at Merrill Lynch in Indianapolis, Indiana, while becoming one of the country's top financial advisers. Barron's ranked Buck as the top financial adviser in Indiana every year since 2009, reporting that he had $1.5 billion in client assets under management. Barron's also reported that...

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Financial Adviser Sued By NBA Star

Tim Duncan, San Antonio Spurs 15-time All Star, recently sued his adviser in Texas state court, claiming he was pushed into investments despite conflicts of interest that ultimately caused him substantial losses. In his complaint filed in San Antonio, Duncan claims that his Atlanta-based financial adviser, Charlie Banks, hid his own interest in investment opportunities that Banks recommended to Duncan. The NBA star said that Banks exploited his good intentions and their relationship for his personal gain, and that he has joined the long list of professional athletes taken to the cleaners by investment advisers. Adviser conflict of interest The NBA star claims that...

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Institutional Investors Sue American Realty Capital Properties

TIAA-CREF, New York City Retirement Systems (NYCRS) and other investors recently filed complaints in the U.S. District Court in New York against American Realty Capital Properties (ARCP), a real estate investment trust. Deceiving the market The suit alleges that ARCP violated securities law by misrepresenting the company's business and prospects, deceiving the market and artificially inflating prices of its securities. According to the NYCRS’s filing, ARCP misstated its adjusted funds from operations by about $23 million in the first and second quarters of 2014. The filing also claims that at the end of October, the company acknowledged the errors and senior executives knew...

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Obama Calls For New Rules to Save Investors Billions

If President Obama gets his way, your retirement savings could grow even more each year. In a recent speech to AARP supporters in Washington, Obama said he is asking the Labor Department to write new rules that could save investors as much as $17 billion dollars a year by requiring financial advisers to put their client's interests above their own with regard to investors’ retirement plans. Fiduciary duty of brokers Why the rule change? Currently, brokers are held to a 'suitability' standard which means they must reasonably believe their recommendation for a customer. Obama is calling for regulations that would make it the...

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Are Financial Planning Clients Getting What They Pay For?

As an investor, you might not be getting what you pay for regarding financial planning. A recently released study attributes this to the lack of government-enforced professional standards. According to research conducted on behalf of the Financial Planning Coalition, clients could not identify Certified Financial Planners from other advisers. When they worked with someone who claims to be a Certified Financial Planner, clients were sometimes given inadequate financial guidance. The study says that when investors looked for help regarding a comprehensive financial plan, nearly one in three received only two services — primarily investment advice and retirement planning. About 30 percent said...

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Thirteen Firms Sanctioned for Improper Sales of Puerto Rican Bonds

The Securities and Exchange Commission (SEC) recently fined 13 financial firms for selling risky Puerto Rican bonds to retail clients beneath the minimum allotment of $100,000 for a single transaction. To shut out small investors and protect those who may not be able to withstand large losses on risky offerings, the SEC mandates that municipal bonds can only be sold in a ‘minimum denomination’ of $100,000 per transaction. But earlier this year, an SEC investigation into the trading of securities from a $3.5 billion Puerto Rican junk-bond offering found 66 incidents of sales under $100,000. The general-obligation deal represents the largest speculative-grade...

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Star Brokers’ Wings Clipped by Increased Regulatory Scrutiny

A widely accepted reality of the financial industry is that management typically turns a blind eye to potential indiscretions of star brokers -- the top 1 percent. This is to avoid antagonizing the agents who bring in humungous amounts of money in fees and commissions. But big producers are now facing tough questions from regulators about alleged violations. Three recent terminations of star producers have brought the issue to the fore. Merrill Lynch recently fired Stephen S. Brown and James P. Goetz, allegedly for not disclosing outside business activities and participating in private transactions involving clients. The transactions allegedly involved non-Merrill Lynch...

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SEC Requiring More Data — Firms Need to Refocus on Compliance

Examiners with the Securities and Exchange Commission (SEC) are poring over much more data from advisory firms, and are able to use predictive analytics to identify warning signs of a likely violation. This was the essence of a speech given by John Walsh, a partner with Sutherland, Asbill & Brennan, at a recent Schwab Impact conference in Denver, Colo. Walsh spent 23 years at the SEC before entering private practice. Examiners are using a new analysis tool that looks at 27 different areas of data from advisory firms. According to a securities lawyer, the use of ‘big data’ has fundamentally changed the...

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Adviser Found Guilty for Stealing Nearly $1 Million

Former Ameriprise Financial Inc. adviser Susan Walker recently pleaded guilty to defrauding 24 clients of $980,000. Walker used the money to pay for personal expenses, including vacations and private school tuition. The U.S. Attorney's Office for the District of Minnesota reported that the alleged incidents occurred between 2008 and 2013. According to the complaint filed by the U.S. Attorney's Office for the District of Minnesota, Walker opened investment accounts in her own name and in the names of several clients without their permission. She then withdrew money from clients' accounts, deposited it into the accounts she controlled, and then withdrew the money...

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