Solutions, Self Defense and Best Practices

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Re: Solutions, Self Defense and Best Practices

Postby admin » Sat Sep 07, 2019 8:49 am


“We show that a low-expense fund investor could have earned 70 percent to 145 percent more” than someone who chose comparable funds at a higher price."

~the authors wrote

Fund fees have hit record lows. So why are many investors still stuck in high-cost funds?

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July 14, 2017

Lower Fees Are Great, if You Actually Get Them

By M.P. Dunleavey

With investment costs, less is more. Many investors are getting the message that paying less for mutual funds (or for any investment, really) will put more money in their pockets in the long run.

Last year, investors in the United States paid, on average, the lowest mutual fund fees ever, according to Morningstar.

But investment costs are full of unpleasant surprises, and academic studies have found that many people aren’t taking advantage of better-priced alternatives.

“In one part of the market there is enormous cost competition, and investors there have never had it better: They can buy funds almost for free,” said Micah Hauptman, financial services counsel with the Consumer Federation of America, a nonprofit research and advocacy group.

“But outside of that space, there isn’t as much competition,” he said. “Investors need better information about what they’re paying and what they’re getting.”

Low-Cost Funds Take Off

By now, many people understand that fund fees take a toll on returns.

One well-known calculation from the Department of Labor found that, over 35 years, a difference in fees of one percentage point could reduce the final value of a 401(k) account by a harrowing 28 percent.

Now, many cost-conscious investors are voting with their wallets.

Last year, there were $326 billion in outflows from the highest-cost actively managed funds, and a record $429 billion in inflows to the lowest-cost index funds, according to Morningstar’s analysis of open-end mutual funds and exchange-traded funds in the United States.

A recent study by the Investment Company Institute documented a similar trend over the last 20 years.

The more assets a fund has, the lower its expenses tend to be. So the overall trend in fund flows to cheaper mutual funds means that the average asset-weighted expense ratio of index funds dropped to 0.17 percent, Morningstar found — considerably lower than the average 0.75 percent fee charged by active funds.

As a result, the market share of low-cost passive funds swelled to 32 percent in 2016, from 23 percent in 2012.
On the face of it, there is a benevolent domino effect happening: As more investors choose cheaper funds, the assets in those funds grow — and the corresponding costs further decline. Or they should.

An Enduring Disparity

But positive as this trend may be, it masks some glaring, persistent differences in fund costs throughout the industry, said Michael J. Cooper, a professor of finance at the University of Utah. “Expense ratios are dropping, which is wonderful,” he said, “but the disparity between high-cost funds and low-cost funds hasn’t changed.”

In a working paper titled “The Mutual Fund Fee Puzzle,” Mr. Cooper and two colleagues, Michael Halling of the Stockholm School of Economics and Wenhao Yang of the University of South Carolina, examined the costs of over 20,000 equity mutual funds in operation in the United States between 1966 and 2014.

Even controlling for characteristics like a fund’s style, size and risk level, the study revealed a constant disparity in fund pricing over time — and the risk of lower returns for those who buy pricier funds, because of the compounding effect of fees.

“The costs for getting it wrong — investing in high-expense funds when close-to-identical low-expense funds are available — are large,” the authors write.
“We show that a low-expense fund investor could have earned 70 percent to 145 percent more” than someone who chose comparable funds at a higher price."

The authors looked at the effect of fees over a 48-year horizon, which helped to show the potentially dramatic toll of investment costs over decades.

Plain Vanilla Funds, Fancy Prices

The analysis built on work by other researchers who had found that Standard & Poor’s 500-stock index funds, which merely track the S.&.P. 500, show a surprisingly wide price gap, “despite being basically the same peanut butter,”
Mr. Cooper said. He found that, for the period of 2000 to 2014, an investor in the lowest-cost S.&.P. 500 index funds would have ended up with a balance 22 percent higher than someone who invested in the highest-cost funds.

“It’s baffling,” said Mr. Hauptman of the Consumer Federation of America. “You have nearly identical funds, yet one can cost 1 percent more than the other. In a competitive environment, why do these products exist?”

Yet they do. Even confining one’s view to the landscape of S.&.P. 500 index funds — often referred to as plain vanilla funds because they simply mirror the performance of big companies — the range of choices is dizzying. There are about 50 different S.&.P. 500 funds, with over 150 different share classes, according to Morningstar, and fees vary widely.

The annual expense ratio for the Admiral shares of Vanguard’s 500 Index Fund (VFIAX) is 0.04 percent basis point, compared with 1.55 percent for the A shares of the Rydex S.&.P. 500 Fund (RYSOX), which also charge a sales fee of 4.75 percent.

Similar Funds, Differing Costs

What can account for such stark differences? One reason Vanguard maintains such low fees is the economy of scale of its equity index funds, which are among the biggest and cheapest in the industry.

“We can keep passing on the economies of scale to the investors, who are basically creating them,” said Joseph Brennan, director of global equity indexing. Vanguard is owned by its mutual fund shareholders, and that unique structure provides an incentive to keep costs low.

Rydex funds, by contrast, have fewer assets under management, which can drive up costs. And the Rydex S.&.P. 500 fund “is more expensive than some other index funds because it is priced twice a day and designed for tactical fund traders,” said Ivy McLemore, a spokesman for Guggenheim Investments, which offers the Rydex funds.

It can be hard for individual investors to parse various funds and their costs. But the fee-conscious can still take matters into their own hands. The Financial Industry Regulatory Authority offers a fund-analysis tool, as does, an online service that can analyze the fees you’re charged.
When it comes to investment costs, clearly it pays to be your own watchdog.

Thanks for sharing this to:
Joe Killoran, 1979 Ivey MBA

(bold, underlines etc by Investor Advocate)
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Re: Solutions, Self Defense and Best Practices

Postby admin » Tue Jul 02, 2019 11:52 am

(once again, it is the CFA’s of the world who lead the way in honesty, ethics and higher professional standards) (I wish I were a CFA:)

CFA’s Simply Fly Above The Herd....Always Have


Should the IPS be mandatory in the suitability world?

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Re: Solutions, Self Defense and Best Practices

Postby admin » Thu Jun 20, 2019 7:21 am

Vermont establishes restitution fund for victims of investment fraud
Portion of settlements with financial perpetrators would supply the pool

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Jun 19, 2019 @ 2:04 pm
By Mark Schoeff Jr.

Vermont victims of investment fraud will be more likely to recover money thanks to a restitution fund the state created this week.

The state will supply the fund by siphoning a portion of monetary settlements from securities enforcement cases, according to Vermont Commissioner of Financial Regulation Michael Pieciak.

He said somewhere between 12% and 15% of settlements will be diverted to the restitution fund. Last year, the state assessed about $3 million in penalties for securities violations.

Under the rules for the fund, victims can obtain the lesser of $25,000 or 25% of restitution awarded within two years of a final order. Vulnerable persons, including those age 60 and over, could receive the lesser of $50,000 or 50%.

The fund was created as part of a bill approved this year in the Vermont legislature. The goal is to give victims of financial rip-offs a way to recover some money when the perpetrators have already blown through ill-gotten gains.

"These would be folks who would be otherwise uncompensated," Mr. Pieciak said.

Vermont joins Indiana and Montana in establishing restitution funds. Other states may follow.

"These are conversations we have to have because these funds provide real benefits to investors," said Mr. Pieciak, who also is president of the North American Securities Administrators Association.

Christine Lazaro, president of the Public Investors Arbitration Bar Association, said restitution funds are a good idea.

"In terms of investor protection, it's an important step in ensuring that investors who are harmed are given some recovery," said Ms. Lazaro, who also is a law professor at St. John's University.

The Vermont fund arrives while the Financial Industry Regulatory Authority Inc. grapples with the problem of unpaid arbitration awards.

"We would like to see Finra use its fine money to help provide restitution to investors who go through the arbitration process," Ms. Lazaro said.

During a session on unpaid arbitration last year at a meeting of the Securities and Exchange Commission's Investor Advisory Committee, the Financial Services Institute warned that a fund for arbitration victims should not be funded by brokerages that have done nothing wrong.

Although the Vermont fund taps money only from violators, FSI is wary of the state's approach.

"Similar to the arbitration fund, we would be concerned that the existence of the fund would lead to Vermont bringing additional enforcement matters and/or increase enforcement fines in order to fund the pool," Robin Traxler, FSI senior vice president of policy and deputy general counsel, said in a statement. "We encourage Vermont to monitor their statistics around enforcement matters and fines to ensure these are not increasing because of the existence of the fund."

A recent Finra rule proposal would require rogue brokerages to shift money to an account controlled by Finra that could be used in part to fund unpaid arbitration awards. ... ment-fraud
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Re: Solutions, Self Defense and Best Practices

Postby admin » Thu Oct 11, 2018 2:15 pm

Know Your Advisor (KYA)

Investor Advocates considers it neither fair nor professional for investment firms to conceal whether investors are dealing with a disguised sales agent, or a licensed fiduciary investment adviser. 96% of “advisors” in Canada are found to be not registered as such

One source of this is the registration search page at the Canadian Securities Administrators (CSA)
A second source is CBC News which utilized the search functions of the regulators to produce this report in 2017 (3 min CBC National News)


Knowing your advisor (KYA), means to understand the true license, obligations and duties of care that advisors owe, or do not owe, to an investor.

The TWO MOST COMMON investment registrants in Canada are:

“Dealing Representative” is the largest category with over 116,000 sales agents in Canada. Until 2009 this category was officially termed “Salesperson”, and as recent as 2017 was still quite clearly described by regulators as a “Salesperson” role.

Most Dealing Reps work for banks, investment firms, insurance and mutual fund dealers. They are the product sales representatives for dealers and not to be confused with professional fiduciary “advisers”. Dealing reps are governed by self-determined “suitability” standards regarding what they sell, and today that is the lowest standard found in the industry.

Millions of Canadians are being sold investments by persons mis-representing and concealing this registration and it's sales roles. It is crucial for Canadians to be informed whether they are in a salesperson-relationship, or a professional advisory relationship.In the US, it is hundreds of millions who are being kept securely in the dark in a similar broker bait and switch shell game

The second category, at around 4000 registrants, is an “Advising Representative”. Advisers carry the legal duty of a fiduciary and thus could be compared to having a professional “do no harm” requirement similar to a doctor. Fiduciary advisers are well explained at the following site:

Understanding Registration Categories CSA.jpg

Caution #1 for investors, is that almost all licensed “Dealing Representatives” use a marketing-ploy of title inflation, to lead investors into the mistakenly belief that they are “Advising representatives”.
Commission sellers thus mis-direct investors by calling themselves by the clever but legally meaningless title “Advisor”.
Millions of Canadians are thus mis-informed of whether they are dealing with someone who must advise on behalf of the client…or are selling products on behalf of a dealer.

Caution #2
Selling products is not giving advice. Giving advice is not selling products.
Investment sellers (and regulators) have massive incentives to keep the public in the dark about these opposite roles.

Caution #3 Regulators add to the public confusion by altering rules, titles, descriptions, and terms. We are concerned with conflicts of interest caused when financial firms pay the regulators…who police those financial firms…who pay the regulators.
When regulator salaries become as high as $700,000, this increases the risk of financial influence on regulators.

We believe these cautions are important because when a commission sales “Dealing Representative” conceals their sales license and role from public view, investors are not protected by the fiduciary duty, or by assumed professional standards.
Dealing Reps can lawfully sell anything that meets a self-determined “suitability standard”, rather than the higher fiduciary duty of the licensed Advising Representative.

Misinformed investors are too-often sold the most expensive and thus worst performing investments, since these are the most profitable for the seller/dealer. Even the worst financial product can still be called “suitable”…from a salesperson perspective.

Caution #4 is the inability for investors to find, and clearly understand the license and duty of their “advisor”. This speaks a second time to the conflicts of interest, when the financial industry pays virtually every key investment regulator.
Canadians should take the word “advisor” with a large grain of salt, and it is now evident that even the word “regulator”, may no longer mean what the public understands it to mean.

Search for any investment registrant at and you may be able to determine how your “advisor” is registered…but not it’s meaning for the investor.
Provincial regulators are quietly doing a disquieting job of making this information difficult, if not impossible for the public to understand.
Regulators appear ‘invested’ in helping the public to falsely ‘assure themselves’ that their financial advice-giver IS registered….while helping to conceal precisely how they are registered…and what that registration means to an investor. Why would regulators hide the most important item of relationship disclosure that affects Canadians life savings?

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Re: Solutions, Self Defense and Best Practices

Postby admin » Wed Aug 01, 2018 1:15 am

Board outrage over push to have a social licence

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Company directors warn that a push to require companies to justify their "social licence to operate" is the sort of politically correct nonsense that AMP chairman David Murray warns has distracted boards and contributed to the scandals at AMP and the financial sector.

Mr Murray took a stand on Wednesday to say he will not follow the ASX Corporate Governance Principles, which are currently being updated with proposals including introducing the concept of having a social licence to operate, 30 per cent female board targets and disclosing climate change risks.

The Australian Institute of Company Directors is spearheading the campaign against the proposal for companies to have a social licence in particular, an elusive concept tied to the level of acceptance by the public and local communities of a businesses' operations that has gained prominence in recent years.

The Law Council of Australia, Chartered Accountants and Australian Financial Markets Association and individual directors including Graham Bradley and Maurice Newman are speaking out over their concerns while groups including the Australian Council of Superannuation Investors and Australian Shareholders Association are pushing for the change.

Aren't law and ethics enough?

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"We have significant concerns with the proposed revisions ... including the introduction of the fluid concepts of a 'social licence to operate' and acting in a 'socially responsible manner'. [These] concepts ... are subjective and will add unnecessary complexity and uncertainty," the AICD submission warns.

"The concept of 'social licence' is highly subjective and will be interpreted differently by different stakeholders ... these proposed changes have caused significant concern amongst the director community."

Chief executive of the AICD Angus Armour told The Australian Financial Review the level of prescription in the latest proposed version of the principles has directors deeply concerned.

"Our concern with this draft is it is moving away from the framing of the document as principles," Mr Armour said. "It seems to be trying to address the issues which have emerged from the Hayne royal commission and APRA report on the CBA but it is not helpful because directors have clear obligations in legislation ... as directors contemplate the needs of their stakeholders they have to balance their sometimes conflicting needs."

"We think it is enough to ask companies to act in a legal and ethical manner," he said.

Who issues a social licence anyway?

While the principles issued by the Corporate Governance Council – a mix of influential business and investor groups – are not legally mandatory, it has become accepted corporate governance orthodoxy for top listed companies to respond to the "if not, why not" principles or face a potential backlash from investors.

The former chairman of the ASX Maurice Newman says he "questions the whole concept of social licence" and that "companies should be focused on keeping your costs down and your customers happy".

AICD CEO Angus Armour wonders who issues a social licence anyway?

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Chairman of EnergyAustralia, Graincorp, HSBC Bank Australia and Virgin Australia Mr Bradley said he had made a submission because of his concerns the principles have become "far too prescriptive from everything from how committees should operate, whistleblower policies codified to gender targets" with the latest revisions 50 per cent longer and increasing from 29 to 38 recommendations, a 30 per cent increase.

The AICD, which is supporting the changes on gender targets and climate risk, detail an example in its submission and ask 'who issues the social licence?'

If company X is seeking to engage in natural gas exploration and extraction adjacent to a rural community and has obtained the necessary licensing and regulatory approvals from the relevant authorities, the community, employees and investors are likely to all have different views, the AICD warns.

"In such a scenario, it is clear there will be conflicting views on whether the investment would constitute socially responsible behaviour," the AICD say. ... al_twitter
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Re: Solutions, Self Defense and Best Practices

Postby admin » Mon Dec 04, 2017 12:17 pm

RIA = registered investment advisor. Subject to fiduciary standards, i.e full blown best interests.

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“We are proposing that the SEC provide further administrative guidance that anyone calling themselves financial or investment advisors or otherwise providing personalized investment advice be required to register as an RIA. We will also call for rulemaking that will require all brokers to make prominent, up-front and ongoing disclosures that they are agents of the seller of financial products and services and that they are not representing the interests of the customer.
All of this is designed to bring clarity to retail investors on exactly who their financial service providers serve. We see this as an important interim step as the SEC and DOL consider a uniform fiduciary duty.” ... 8ifQ%3D%3D
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Re: Solutions, Self Defense and Best Practices

Postby admin » Wed Oct 11, 2017 1:15 pm

from ... gn=101217z

“Clean” shares refer to mutual funds with all the sales-related fees stripped out of them.

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It looks like regulators and the industry may finally have come around to recognize the difference between fees that matter and fees that shouldn’t matter (see, respectively: “401k Fees That Matter,”, April 27, 2010; and, “401k Fees That Should Matter,”, May 3, 2010). The word de jour is “clean,” as in “clean shares.” By now you’ve probably read one too many articles on the subject of this blossoming concept speculating on the future of retirement plan mutual fund investments. This article reveals the one thing those other articles have left out.

“Unlike other share classes sold through broker/dealers, clean shares are shares that don’t have conflicts-of-interests such as charge sales loads,

“Clean” shares refer to mutual funds with all the sales-related fees stripped out of them.
“Unlike other share classes sold through broker/dealers, clean shares are shares that don’t have conflicts-of-interests such as charge sales loads, 12b-1 fees, transfer agency fees, or other investor expenses that generate commissions for brokers and other intermediaries,” says Dan Sondhelm, CEO of Sondhelm Partners in Alexandria, Virginia. “Brokers instead can charge commissions or service fees for buying and selling shares. Since these costs are clearly stated on investors’ account statements, clean shares will give investors a far more transparent view of their actual investment expenses.”

The SEC currently requires some of these conflict-of-interest fees be disclosed on page two or the mutual fund prospectus as either wholly separate fees (i.e., front and back-end loads) or as a separate line item on the expense ratio (i.e., 12b-1 fees). The SEC does not currently require disclosure on other conflict-of-interest fees (i.e., revenue-sharing) and these fees are hidden within the fund’s expense ratio.

All fees removed to make funds eligible to be called “clean” shares deal with marketing and distribution payouts, not with normal operating expenses (which are reflected by the fund’s expense ratio). Andrew Van Fossen of Allevid Advising in Summerfield, North Carolina, says, “Clean shares are mutual funds that don’t have loads or other major fees in buying or selling. The only fee is the typical ‘management fee’ (a small percentage of the mutual funds total assets under management) that all funds use to keep the lights on.”

Studies have shown that embedded conflict-of-interest fees can have a detrimental impact on mutual fund performance (see “Yet Another Independent Study Highlights High Conflict-of-Interest Cost to Retirement Investors,”, February 26, 2017). Researchers have tried to explain this divergence in return data. They believe funds that payout conflict-of-interest fees have built business models based on success through selling, while those fund that do not rely on conflict-of-interest fees have built business models based on success through superior investment performance.

That most funds contain one sort of conflict-of-interest fee or another suggests the success through selling business model has been widely adopted by the mutual fund industry. “Most mutual funds were built to pay the brokers to send their clients to them,” says Van Fossen. “As such, they had those loads which primarily went to paying broker’s commissions.”

This long-term trend among mutual funds to incorporate conflict-of-interest fees into their business models may have finally hit a brick wall with the DOL’s Conflict-of-Interest (a.k.a. “Fiduciary”) Rule. “Mutual funds have been available for many decades,” says Sondhelm. “The industry was built on compensating financial advisors for advice. These fees were built in to mutual funds. Some firms have become more shareholder friendly over the years. Now, the DOL laws are the catalyst for more firms to participate. Of course, this process will take time. Developing share classes and/or changes to existing share classes, strategic thinking for boutique firms to determine if they want to remain in the fund industry, among other considerations, will take time.”

Indeed, some feel it is the very existence of the DOL’s Fiduciary Rule that has given rise to the push towards “clean” shares. “The concept of ‘clean’ shares came about so that brokers can comply with the new upcoming DOL Fiduciary Rule,” says Scott Salaske, CEO of Firstmetric in Troy, Michigan. “Many mutual funds are likely in no hurry to add the ‘clean’ share class unless their funds are heavily used in 401k products.”

By removing conflict-of-interest fees, fund investors receive an immediate benefit from “clean” shares. “Clean shares will give investors a far more transparent view of their actual investment expenses,” says Sondhelm.

In shifting away from broker-oriented transaction fees, the industry itself may shift towards new business models. “Clean funds are going to push brokers to become advisers,” says Van Fossen. “Instead of being paid on transactions, they will be paid either hourly (less likely) or on a percentage of their client’s assets (more likely).”

With fees no longer hidden, it will be easier to monitor fees and competitive pressure will likely eliminate excessive fees. “The biggest advantages of ‘clean’ shares are simplicity and lower costs for investors/retirement plan participants and transparency for retirement plan sponsors,” says Vitaly Novokreshchinov, Owner of Lestna Capital Group LLC in Chicago, Illinois. “Lower costs intensify the effect of compounding and have direct correlation with better investment outcomes for investors and plan participants. For plan sponsors, it improves transparency by enabling clearer disclosure, being aware of who pays what, and makes it easier to prove prudence of including such funds in the investment menu for plan participants.”

Still, there is no guarantee “clean” shares will result in lower net fees. Salaske says, “Many journalists have written about new ‘T’ shares and ‘clean’ shares over the course of 2017 with varying descriptions that all come back to the concept that clean shares are supposed to eliminate conflicts of interest, offer the lowest cost share class and be more transparent. All investors want 100% transparency when it comes to investing, but with a name like ‘clean’ shares they will likely think what the name implies, everything is clean, but not so fast. Just because something has a new label does not mean that it’s any better for investors. In the end, investors will likely pay the same amount in total investment costs when purchasing ‘clean’ shares, with the only difference being that now the fees are all split out from the fees charged by the mutual fund for investment management and distribution. This will likely help actively managed mutual funds with improved performance because the investment management fee will be lower because it will not include broker distribution fees, but don’t be fooled, those other fees that have been separated out of the total expense ratio of the mutual fund will still be charged, but just presented as new line items by the broker-dealer. It’s just reshuffling the fees and calling them by other names. I’m not sure why the industry is trying to fix something that does not need to be fixed. After all, there are already Class I (institutional) shares, that have low fees, no sales loads and no 12b-1 fees. What exactly is the industry trying to comply with when they already have a solution? Maybe they like the name ‘clean’ because it implies something that it’s not.”

Salaske has a point. For all the talk about “clean” shares and for all the articles written recently on the subject, very little attention has been paid to the fact we already have “clean” share funds available and we have had them available for a long time. It’s not just institutional class shares (which may still have revenue sharing fees). Quite a few funds have no 12b-1 fees, no commission loads, and no revenue sharing. You probably haven’t heard about them because, in rejecting the “success through selling” business model, it turns out they aren’t aggressive when it comes to marketing as their conflict-of-interest competitors.

The challenge is identifying a system for finding these funds. Sondhelm says, “Ask the fund firm specific questions about being ‘clean’ and read the prospectus although current versions may not have all the needed information. Prospectuses will probably have a clean section at some point.”

Because mutual funds are currently not required to disclosure revenue sharing, identifying current funds that qualify as “clean” share funds might prove difficult for the average person. “In order to identify funds that offer ‘clean’ shares, plan sponsors/participants can either do their own research or hire someone to do it for them,” says Novokreshchinov. Doing research on its own could be very time-consuming and requires investment knowledge and expertise. For plan sponsors, a much better way would to be delegate this responsibility. Hiring either a 3(21) Fiduciary Adviser or 3(38) Investment Manager is definitely a preferred for plan sponsors. When it’s plan participants, they can rely on other employees and plan guidance. However, working with a financial adviser is a best way to go.”

The bottom-line, according to Salaske, is that “there is no easy way to tell today that a mutual fund has a ‘clean’ share class. The industry and regulators are still trying to figure it all out.”

It has been this very hurdle that may have enabled the explosion of conflict-of-interest funds in the first place.“Lack of fiduciary and investment knowledge, no time, and even passivity among retirement plan sponsors and investors makes them rarely aware of better and cheaper investment alternatives available,” says Novokreshchinov. “As a result, mutual funds take advantage of this situation and are reluctant to promote ‘clean’ shares and give up more revenue they receive from other types of shares.”

Since we already have funds that can be classified as “clean” shares, why has there been this push of late to get regulators involved? “It helps to have the guidelines of regulators,” says Sondhelm. “Without them, funds will become 60% clean or 80% clean. While that is a step in the right direction, that doesn’t bring the industry far enough towards the goal.”

In addition, recent regulatory actions appear to have been the impetus of the growing interest in “clean” shares. “Since ‘clean’ shares came about for brokers to try and comply with the new upcoming DOL Fiduciary Rule,” says Salaske, “then regulators should step in and help the industry define this concept so at least investors have a fighting chance to be able to compare apples-to-apples and know what they are paying in total investment costs, not just the amount in mutual fund investment management fees.”

We have yet to reach an agreement on the exact definition of “clean” shares. Regulators may be in a better position to help do this. “‘Clean’ shares are in relatively early stage of its development and there is no consensus in the investment community on which other fees, such as sub-TA, they should include,” says Novokreshchinov. “This is where regulators could step in and provide its guidance. Specifically, regulators need to decide whether sub-TA and other revenue sharing fees should be included in ‘clean’ shares or not. Without regulators the industry may end up with another share class which is fair without and foul within.”

In the end, categorizing the cleanliness of funds may represent a business opportunity for someone. Sondhelm believes “research firms like Morningstar will start to cover how ‘clean’ a fund really is. This section will be added to their or principia pages. Institutional consultants or outsourced CIO’s will be building databases of who qualifies as clean. Firms that put 401k plans together will likely add cleanliness to their criteria for fund selection. Government who is developing the rules may be supervising this over time. Maybe they can keep track to in a user-friendly database. Investment platforms, such as Schwab or UBS, may also be differentiating funds by clean vs not as clean. Financial advisors may be carving out a niche for themselves to promote their additional layer to avoid conflicts of interest. Clean fund firms will be touting their cleanliness in multiple ways, from brochures to videos for their financial advisors. Certainly, the financial news media will be writing about it and keeping track. Finally – select entrepreneurial companies may use this as a catalyst to develop a product focusing on clean mutual funds. As a result, peer pressure – and the publicity around it – will cause even more challenges in attracting investors for those firms who don’t follow along. Some will determine the expense is too much for them to bear and will decide to have their funds adopted or acquired. This will also be a buying opportunity for firms willing to be on the forefront of clean shares.”

Sooner or later, it will be important for 401k plan sponsors to get down and dirty when it comes to understanding the fiduciary liability implications of “clean” shares and their equivalent. Furthermore, since the most successful class action suits have involved different share classes of the same fund, you can be sure the introduction of “clean” shares will catch the eyes of your not-so-friendly neighborhood class action attorney.

Christopher Carosa is a keynote speaker, journalist, and the author of 401(k) Fiduciary Solutions, Hey! What’s My Number? How to Improve the Odds You Will Retire in Comfort and several other books on innovative retirement solutions, practical business tips, and the history of the wonderful Western New York region. Follow him on Twitter, Facebook, and LinkedIn.

Mr. Carosa is available for keynote speaking engagements, especially in venues located in the Northeast, MidAtantic and Midwestern regions of the United States and in the Toronto region of Canada.

SOLUTION: Tell your “advisor” that you demand and expect only “clean shares” (as described in this article) and/or go find them yourself.

(anything else is a sales-trick hidden behind an “advice disguise”)
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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Aug 04, 2017 9:05 pm

Hello Larry,
Below is a slightly edited version which you can make public ... some of the details about my dad are not really necessary to make the point and I'd rather keep that private. Therefore if you do post it publicly, please add a note that certain personal details have, out of privacy concerns, been deleted from the original sent to Mr Kreigler.


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To: IIROC (Investment Industry Regulatory Organization of Canada)
Mr Kreigler,
Thank you for the substantive reply to my comment / question. Here is what I suggest you should consider at IIROC:

Substitute the word "representative" for "advisor" in all your material.
This more neutral term does not inadvertently suggest that advice may be allowed when in many cases it is not
the word actually is contained in the two main categories that deal with the public, Registered Representative and Investment Representative

Align the IIROC approval categories with those of the Canadian Securities Administrators (CSA)

It seems that it is possible for a person to be authorized by IIROC to trade and advise in securities but not by the CSA; in fact, I discovered by using your AdvisorReport that my dad's former Representative is approved by IIROC as Registered Representative and as such, allowed to offer advice, but is only a Dealing Representative aka SalesPerson per the CSA.

I interpret that to mean that CSA's classification takes precedence over IIROC's and the guy was just a salesman; does it need saying that such a situation is highly fraught with confusion for the public?

Back in 2015 when I last looked into this topic (blog post here I found a minefield of confusing titles, approval categories and responsibilities - could the industry not see fit to adopt unified explanations at least, and better, common terminology?
Include information on the representative's bottom line authorized role

Though your online report helpfully includes the CSA classification, make clear what is the bottom line authorization (i.e. what the CSA says he/she is authorized to do)

Include information on the standard of care associated with the representative's bottom line CSA-authorized role

Is it suitability or fiduciary duty of care level that applies for the particular representative? In the case of my dad, the Salesman's suitability-only obligation resulted in several high-fee deferred service charge mutual funds being in the portfolio when I came along.

Now, my dad is no dumb "vulnerable" person but if he did not have such an ornery streak which led him to mostly ignore the "advice" of the particular salesman I am sure I would have discovered a portfolio stuffed with high-fee "suitable" mutual funds; not many people will have that successful instinct, as indeed I have discovered among other members of my family who are intelligent and well educated but too busy to make detailed enquiries about the nature of the relationship with their self-styled financial "advisors”.

Jean is the author of the financial blog found at

This blog has been a credible and respected source of investment analysis and objective information since 2007.
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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Aug 04, 2017 8:52 am ... on-brokers

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Brokers in Nevada will have to meet a fiduciary standard when providing investment advice under a law that will take effect July 1.

The measure revises a current fiduciary law applying to "financial planners" that excluded brokers and investment advisers. The new law subjects brokers and advisers to the state's fiduciary rule.

Brokers normally operate under a suitability standard enforced by the Financial Industry Regulatory Authority Inc. that requires them to sell products that fit a client's risk tolerance, liquidity needs and investment objectives. Under the Investment Advisers Act of 1940, investment advisers must give advice that is in a client's best interests, or meet a fiduciary standard.

The Nevada law will go on the books just weeks after partial implementation of a Labor Department fiduciary rule that requires all financial advisers to act in the best interests of their clients in retirement accounts. The DOL rule is undergoing a review mandated by President Donald J. Trump that could result in modification or repeal.

"For a state to impose fiduciary duty on all accounts, not just retirement accounts, is a very big deal," said Andrew Hartnett, officer at Greensfelder, Hemker & Gale and former Missouri securities commissioner. "As uncertainty [about the DOL rule] lingers out there, it wouldn't surprise me to see other states step into that void."

The Nevada law was approved on party-line votes in the Nevada legislature, where Democrats hold the majority. It was signed on June 5 by Gov. Brian Sandoval, a Republican. A spokeswoman for Mr. Sandoval did not respond to a request for comment.

Under Nevada's fiduciary duty, financial advisers must disclose any "profit or commission" they receive based on their guidance to clients and must make a "diligent inquiry" about a client's financial condition and goals, according to an analysis by Mr. Hartnett.

The new Nevada law authorizes the state's securities administrator, Diana J. Foley, to "adopt regulations defining or excluding acts, practices or courses of business as violations of that fiduciary duty." A spokesperson for Ms. Foley was not immediately available for comment.

It's not clear whether the Nevada law subjects brokers to a continuing duty of care or simply makes them fiduciaries at the point of sale, Mr. Hartnett said.

"There are a lot of questions surrounding what this legislation means for a commission relationship," he said.

The Nevada law could be challenged under federal pre-emption, according to George Michael Gerstein, counsel at Stradley Ronon Stevens & Young.

"There's a little bit of a question as to whether a state could force broker-dealers to register [as a fiduciary] when they don't have to do so at the federal level," Mr. Gerstein said.

In a 2012 study in the Journal of Financial Planning, Michael Finke, professor of personal financial planning at Texas Tech University, said courts in four states have recognized a fiduciary relationship between brokers and their clients — California, Missouri, South Carolina and South Dakota — while 14 have not. He put the remaining 32 states, including Nevada, in a "quasi-fiduciary" category.

"Quasi-fiduciary states impose standards that exceed the suitability standard set forth under Finra rules, but do not expressly classify broker-dealers as fiduciaries," Mr. Finke wrote.

Mr. Gerstein anticipates that more states will tackle investment advice regulation.

"The notion of these high standards of care across all the regulated entities is entering the public consciousness," he said. "It has become much more of a kitchen-table discussion than it used to be.” ... on-brokers
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Re: Solutions, Self Defense and Best Practices

Postby admin » Tue Aug 01, 2017 6:29 pm

Financial Advisor Fees Comparison – All-In Costs For The Typical Financial Advisor?


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While the standard rule-of-thumb is that financial advisors charge 1% AUM fees, the reality is that as with most of the investment management industry, financial advisor fee schedules have graduated rates and breakpoints that reduce AUM fees for larger account sizes, such that the median advisory fee for high-net-worth clients is actually closer to 0.50% than 1%.

Yet at the same time, the total all-in cost to manage a portfolio is typically more than “just” the advisor’s AUM fee, given the underlying product costs of ETFs and mutual funds that most financial advisors still use, not to mention transaction costs, and various platform fees. Accordingly, a recent financial advisor fee study from Bob Veres’ Inside Information reveals that the true all-in cost for financial advisors averages about 1.65%, not “just” 1%!

On the other hand, with growing competitive pressures, financial advisors are increasingly compelled to do more to justify their fees than just assemble and oversee a diversified asset allocated portfolio. Instead, the standard investment management fee is increasingly a financial planning fee as well, and the typical advisor allocates nearly half of their bundled AUM fee to financial planning services (or otherwise charges separately for financial planning).

The end result is that comparing the cost of financial advice requires looking at more than “just” a single advisory fee. Instead, costs vary by the size of the client’s accounts, the nature of the advisor’s services, and the way portfolios are implemented, such that advisory fees must really be broken into their component parts: investment management fees, financial planning fees, product fees, and platform fee.

From this perspective, the reality is that the portion of a financial advisor’s fees allocable to investment management is actually not that different from robo-advisors now, suggesting there may not be much investment management fee compression on the horizon. At the same time, though, financial advisors themselves appear to be trying to defend their own fees by driving down their all-in costs, putting pressure on product manufacturers and platforms to reduce their own costs. Yet throughout it all, the Veres research concerningly suggests that even as financial advisors increasingly shift more of their advisory fee value proposition to financial planning and wealth management services, advisors are still struggling to demonstrate why financial planning services should command a pricing premium in the marketplace. ... ement-fee/
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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Jul 28, 2017 12:52 pm

From Ben Carlson at Ritholtz Wealth Management:(link at bottom of page)

The Best Books on Financial Market History
Posted July 27, 2017 by Ben Carlson

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Earlier this week I wrote (again) about the importance of understanding financial market history. This prompted a few people to ask for some of my favorite books on the topic. Here goes:

Devil Take the Hindmost: A History of Financial Speculation
If I had to pick just one book to read on the topic, this would be the one. Chancellor weaves history, psychology, and economics beautifully in what is also one of the better-named finance books I’ve come across.

The Panic of 1907: Lessons Learned From the Market’s Perfect Storm
The story behind the banking crisis most people probably aren’t familiar with. This book shows how primitive the financial markets were before banking regulations and the Fed came around.

The Great Depression: A Diary

This first person account of what life was like during the Great Depression is not only a lesson in financial market history but also how difficult that period in history was for those living through it. I can’t recommend this one enough.
Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies
I’m always a little skeptical about how much faith we can put into market data from the late-1800s or early-1900s but this book does a masterful job of going way, way back to show how the various markets have performed over the really long haul.

More Money Than God: Hedge Funds and the Making of a New Elite

A book about the history of hedge funds but it plays out over the decades and gives some great background on what it was like to invest in various market environments over the years and how things have evolved for investors.
The Big Short: Inside the Doomsday Machine
The definitive book about the Great Financial Crisis and subprime mortgage meltdown and one of the best non-fiction books of the past decade. Liar’s Poker by Michael Lewis is also a great account of what Wall Street was like in the 1980s.
A Short History of Financial Euphoria
Howard Marks recommended this one. Galbraith is really good and it’s a quick read on the history of bubbles.

Against the Gods: The Remarkable Story of Risk
In the conversation for best investment books ever written.

Bull: A History of Boom and Bust, 1982-2004

One of the best investment books I’ve read in some time about one of the biggest stock market booms ever.
Dow 36,000…ok just kidding.


I asked a few friends — Michael Batnick, Dan Egan, Meb Faber and Tadas Viskanta — for their list and while we overlapped on many choices here are some I missed:

The Go-Go Years
When Genius Failed
The Money Game
Where Are the Customers’ Yachts?
The Great Crash
The Snowball
An Engine, Not a Camera
Debt, the First 5,000 Years
The Myth of the Rational Market
Birth of Plenty
Financial Market History
The History of the United States in Five Crashes
Triumph of the Optimists
Extraordinary Popular Delusions and the Madness of Crowds

Now, after you read all of those books here’s what else I’ve been reading lately:
Delivering on the 300-hour rule (kc-roi)
The topic is gold (Irrelevant Investor)
How to create work that lasts forever (Ryan Holiday)
A dozen investing lessons from Ed Thorp (25iq)
Biggest investment regret? (Humble Dollar)
Barry had some questions to Vanguard’s new incoming CEO (Bloomberg)
Tennis with Howard Marks (Reformed Broker)
Our NYC conference in November already has Cliff Asness, Scott Galloway, Liz Ann Sonders & Jason Zweig as keynotes (EBI) ... t-history/
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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Jul 28, 2017 10:25 am

The Stupidest Thing You Can Do With Your Money

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Go to Freakonomics, part of New York Public radio and listen to a dozen of the podcasts herein. Find them on iTunes as well, there are hundreds.

They are so well done, so entertaining, and they will tell you 99% of everything you need to know about money matters.

I suggest the best investment education you could give yourself is the gift of getting into the habit of listening to this podcast. Thanks to my friend Derrick who today sent me the podcast he listened to with this comment:

One of the best podcasts I've heard about investing fees.
These freakenomics guys do a good job of exploring things in an unbiased way without preconceived notions.

Episode 295 The Stupidest Thing You Can Do With Your Money
It’s hard enough to save for a house, tuition, or retirement. So why are we willing to pay big fees for subpar investment returns? Enter the low-cost index fund. The revolution will not be monetized.

Check out this episode: ... =390360677
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Re: Solutions, Self Defense and Best Practices

Postby admin » Fri Jun 23, 2017 9:55 am

From 2015 comes this simple, simple list from a wise man, (not myself:) to protect the average person:
I agree with it:

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Maybe we need an Investor Self Protection Organization with simple rules or guidelines
Don't trust the industry.
Don't trust the regulators.
Don't use Advisors of any sort.
Learn the basics of investing.
Do It Yourself with a discount broker using a CASH Account..
Don't buy mutual funds, seg funds or other structured products.
Buy only Shares, Bonds, GICs, and certain true ETFs.
Don't use leverage.
If you do need an Adviser select one who is registered and qualified to give financial advice and open a Discretionary or Managed Account where the firm has a fiduciary obligation. Make sure proper formwork is completed.

(Larry adds only the comment, that if you get a financial-fiduciary-professional, you will be looking at fees, all-in, of around 1%. These folks may not take smaller accounts, and that is to be expected, and if you cannot obtain this level of “do no harm” agency duty, then go back to the list from Stan above. Do NOT settle for the hidden predatory sales tactics of banks and investment dealers who misrepresent their sales agents as if they were advisers. That will be like walking into a trap in 70% of examples in my experience.)
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Re: Solutions, Self Defense and Best Practices

Postby admin » Tue Mar 21, 2017 3:14 pm

March 16th, 2016

To: Financial Consumer Agency of Canada
427 Laurier Avenue West, 6th Floor
Ottawa ON K1R 1B9

Fax: 1-866-814-2224 / 613-941-1436

I write to request investigation into breaches of ‘legislation, regulations, voluntary codes of conduct, and/or public safety commitments’, within the mandate described in FCAC’s annual report.

Specific to: Ontario Securities Act Section 44,
Alberta Securities Act Section 100,
BC Securities Act Section 34,
Manitoba Securities Act Sections 74 and 74.1

As well as any other rules, laws, or public safety commitments that pertain to misrepresentation, deception, or falsification by our regulatory bodies, as well as the banking and investment industry.

It is found that Provincial Securities Commissions, or key persons within commissions, are selectively ignoring violations of public protective commitments and laws found in Securities Legislation.

In one example, ignoring the most basic laws against “misrepresentation”, has seemed to cause a ‘cascade effect’ of negating the “Fair, Honest and Good Faith” requirements, for banks and investment firms. This ‘slippery slope’ has allowed Canadian’s financial security to thus be violated in a myriad of ways by our most trusted institutions. Captured regulation appears to describe this issue, which allows ‘two wrongs to add up to making billions’…predominantly for banks and investment dealers.

I call your attention to a recent report by the Small Investor Protection Association, titled ‘ADVISOR TITLE TRICKERY’. This describes the deception practiced by thousands of bank and investment system players.

It appears that Securities Commissions utilize ‘personal discretion’, to decide if and when to enforce laws or to ignore laws and principles entirely. This occurs even when commissions are notified in writing of the harms of ignoring the law. I am compelled to ask the Financial Consumer Agency to investigate Securities regulatory and self-regulatory bodies and to intervene to protect Canadians.

I look forward to co-operating with FCAC, with others, and hopefully with a public inquiry, to ensure that Canadian laws are applied to the protection of Canadians, and no longer ignored for the sole benefit of the financial sector.

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Larry Elford, Investment Forensics
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Re: Solutions, Self Defense and Best Practices

Postby admin » Tue Mar 21, 2017 3:10 pm

March 20th, 2017

To: Hon Bill Morneau, Minister of Finance

From: Larry Elford

Re: Banking, financial investigations, and call for Royal Commission

Dear Mr. Morneau,

I write to you regarding aspects of financial victimization of Canadians, which I believe to cause the greatest overall economic harm to our citizens, and our country.

I wish to place my name at your disposal if you should need it, regarding recent bank scandals and in particular the FCAC announcement to investigate.

I have spoken in three Canadian legislatures over the past decade or so, on this area, twice in Parliament in Ottawa and once in the Ontario Legislature.

39th PARLIAMENT, 2nd SESSION, Standing Committee on Banking, "How Canadians Are Financially Abused"
40th PARLIAMENT, 2nd SESSION, Standing Committee on Justice, "The Perfect Financial Crime”

I enclose a copy of a recent investigation request sent to the FCAC to ensure that they do not limit their investigation to the banks, which I believe to be only the “symptom” of Canada’s economic drain problems, and not the “disease”.

I believe the disease, or the cause, is well over 1000 financial regulators, who are being paid as highly as $700,000 per year to look the other way, at clear rule and law violations by the banks. In my view it is the regulators who are being so highly paid (paid 100% by the industry they are supposed to protect) that they appear willfully blind to systemic violations of rules and laws.

How may I be of help to Canada in this matter? I seek nothing in compensation.

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Larry Elford, former CFP, CIM, FCSI, APM
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