NY-AG Eliot Spitzer has explained clearly why he takes action in the U.S. securities marketplaces:
1. "if the agencies of the federal government—the SEC, the FDA, the FCC, whatever—abdicate their authority to protect that marketplace, Spitzer says, "I view it as my responsibility to twenty million New Yorkers who are investors, who work in the marketplace," to assume it."
2. "We need competition. . . . . I understand that a market needs to have rules by which it lives. If you have a marketplace unbridled by rules that mandate integrity and transparency, then the market will not work."
Monday, May 30, 2005
"The Naked Investor" Tells It Like It Is
Sunday, May 29, 2005Book reveals top investing pitfalls
By Michael Kane CanWest News Service—Vancouver
John Reynolds is the author of The Naked Investor: Why Almost Everybody But You Gets Rich on your RRSP. CanWest News Service
Hans Merkelbach says he works in a business that stinks. Hans a financial adviser in an industry where most practitioners sell products instead of investment advice.
They do it because they can make a lot of money. More than many of their clients will make from the investments theyre cajoled into buying.
Merkelbach, of Bowen Island, B.C., is one of the real-life characters introduced in The Naked Investor, an explosive new book that chronicles the dark side of Canada's self-serving investment industry.
Disturbing experiences
By recounting a disturbing and sometimes moving collection of true investor experiences, author John Lawrence Reynolds dishes the dirt on how advisers can maximize their earnings, while leaving clients exposed to massive losses.
He also shows how regulators are failing to protect the ordinary investor.
Even when a few investors manage to win partial redress for bad advice, theyre prevented from alerting others by confidentiality agreements and gag orders designed to shield both the offending stockbroker or mutual fund salesperson, and his or her company, from claims by other victims.
Damning indictment
The book, sub-titled Why Almost Everybody But You Gets Rich on Your RRSP, presents a damning indictment of a system driven by greed and duplicity.
Its not about the different branches and techniques of the financial services industry, although it does show readers how they and their money are being manipulated.
Its about people and their personal experiences, coupled with practical advice that hopefully will convince many of Canada's six million RRSP investors that they can do a better job of watching over more than $400 billion in their accounts.
Rescues woman
Merkelbach, 71, enters the narrative when he comes to the rescue of a middle-aged woman who had helplessly watched her $400,000 retirement nest egg lose more than half of its value in the hands of a condescending Toronto insurance salesperson that she had considered her friend.
Most of the account was invested in abysmally performing segregated equity mutual funds carrying management expense ratios as high as four per cent or more. That meant the funds had to earn at least four per cent to pay annual fees to the adviser and the fund manager before they could earn anything for their owner.
As with all mutual funds, the adviser and the fund manager still got paid when the client was losing money.
To make matters worse, the funds were sold on a back-end load basis, which meant the adviser was paid about $20,000 up front just for placing the funds with a life-insurance company, while the investor faced exorbitant penalties if she chose to transfer her money to a better home.
The woman eventually paid $13,000 to correct a mistake that somebody else had made because the back-end load (also known as a deferred sales charge) applied to the original value of her investment, which was twice as high as the funds were worth.
Unlike many of the stories in The Naked Investor, this one appears to be on track to a happy ending. After three years with Merkelbach, the $140,000 left from the original $400,000 has grown to $330,000. The client is free to move her money at any time because Merkelbach does not sell deferred-load funds.
He is well compensated by trailer fees payments by fund managers to advisers typically amounting to one per cent per year of the assets under management and he says thats reasonable because he earns more when his clients earn more and less when they earn less. He doesnt scoop five per cent up front by saddling his clients with onerous penalties if they become dissatisfied with the way their money is being managed.
Unfortunately, many advisers do just that, often with the excuse that it helps to dissuade clients from bailing out on long-term investments when the market is in one of its periodic downturns. That kind of self-serving argument gives the industry a bad name, Merkelbach said.
When I see one of my clients, a very intelligent man, give $700,000 to an insurance broker in Vancouver who sells him six deferred-load funds and makes a $35,000 commission for writing up a bunch of papers, I think, boy, this business still stinks.
Industry shortcomings
Reynolds is inclined to agree. In a telephone interview from his home in Burlington, Ont., he said industry problems are probably equally divided between lack of transparency and the commission-based system which makes every adviser a salesperson.
He believes the industry doesnt want Canadians to know how it makes its money, or how basic the process of making investment decisions can be.
Somewhere along the line, we have to ditch the commission system, he said.
If you visited your doctor with the understanding that your physicians entire income is based upon the commissions that pharmaceutical companies pay him or her for the drugs he or she prescribes, how much faith would you have in your physicians advice? I think the parallel fits exactly with the financial investment industry.
Reynolds, the award-winning author of Free Rider: How a Bay Street Whiz Kid Stole and Spent $20 Million, isnt suggesting Canadians hide their money under the mattress. He says people need professional advice, and most financial advisers try to be professional and are as honest as any other group of Canadians.
The point of the book, frankly, is to alert people to the need for educating themselves where financial matters are concerned.
Pointedly, he says the average seven-year-old child in Canada knows more about sex than his or her grandparents know about investing. Thats a dangerous situation when vultures, jackals, ghouls and everyday thieves are after your money.
Vancouver Sun
By Michael Kane CanWest News Service—Vancouver
John Reynolds is the author of The Naked Investor: Why Almost Everybody But You Gets Rich on your RRSP. CanWest News Service
Hans Merkelbach says he works in a business that stinks. Hans a financial adviser in an industry where most practitioners sell products instead of investment advice.
They do it because they can make a lot of money. More than many of their clients will make from the investments theyre cajoled into buying.
Merkelbach, of Bowen Island, B.C., is one of the real-life characters introduced in The Naked Investor, an explosive new book that chronicles the dark side of Canada's self-serving investment industry.
Disturbing experiences
By recounting a disturbing and sometimes moving collection of true investor experiences, author John Lawrence Reynolds dishes the dirt on how advisers can maximize their earnings, while leaving clients exposed to massive losses.
He also shows how regulators are failing to protect the ordinary investor.
Even when a few investors manage to win partial redress for bad advice, theyre prevented from alerting others by confidentiality agreements and gag orders designed to shield both the offending stockbroker or mutual fund salesperson, and his or her company, from claims by other victims.
Damning indictment
The book, sub-titled Why Almost Everybody But You Gets Rich on Your RRSP, presents a damning indictment of a system driven by greed and duplicity.
Its not about the different branches and techniques of the financial services industry, although it does show readers how they and their money are being manipulated.
Its about people and their personal experiences, coupled with practical advice that hopefully will convince many of Canada's six million RRSP investors that they can do a better job of watching over more than $400 billion in their accounts.
Rescues woman
Merkelbach, 71, enters the narrative when he comes to the rescue of a middle-aged woman who had helplessly watched her $400,000 retirement nest egg lose more than half of its value in the hands of a condescending Toronto insurance salesperson that she had considered her friend.
Most of the account was invested in abysmally performing segregated equity mutual funds carrying management expense ratios as high as four per cent or more. That meant the funds had to earn at least four per cent to pay annual fees to the adviser and the fund manager before they could earn anything for their owner.
As with all mutual funds, the adviser and the fund manager still got paid when the client was losing money.
To make matters worse, the funds were sold on a back-end load basis, which meant the adviser was paid about $20,000 up front just for placing the funds with a life-insurance company, while the investor faced exorbitant penalties if she chose to transfer her money to a better home.
The woman eventually paid $13,000 to correct a mistake that somebody else had made because the back-end load (also known as a deferred sales charge) applied to the original value of her investment, which was twice as high as the funds were worth.
Unlike many of the stories in The Naked Investor, this one appears to be on track to a happy ending. After three years with Merkelbach, the $140,000 left from the original $400,000 has grown to $330,000. The client is free to move her money at any time because Merkelbach does not sell deferred-load funds.
He is well compensated by trailer fees payments by fund managers to advisers typically amounting to one per cent per year of the assets under management and he says thats reasonable because he earns more when his clients earn more and less when they earn less. He doesnt scoop five per cent up front by saddling his clients with onerous penalties if they become dissatisfied with the way their money is being managed.
Unfortunately, many advisers do just that, often with the excuse that it helps to dissuade clients from bailing out on long-term investments when the market is in one of its periodic downturns. That kind of self-serving argument gives the industry a bad name, Merkelbach said.
When I see one of my clients, a very intelligent man, give $700,000 to an insurance broker in Vancouver who sells him six deferred-load funds and makes a $35,000 commission for writing up a bunch of papers, I think, boy, this business still stinks.
Industry shortcomings
Reynolds is inclined to agree. In a telephone interview from his home in Burlington, Ont., he said industry problems are probably equally divided between lack of transparency and the commission-based system which makes every adviser a salesperson.
He believes the industry doesnt want Canadians to know how it makes its money, or how basic the process of making investment decisions can be.
Somewhere along the line, we have to ditch the commission system, he said.
If you visited your doctor with the understanding that your physicians entire income is based upon the commissions that pharmaceutical companies pay him or her for the drugs he or she prescribes, how much faith would you have in your physicians advice? I think the parallel fits exactly with the financial investment industry.
Reynolds, the award-winning author of Free Rider: How a Bay Street Whiz Kid Stole and Spent $20 Million, isnt suggesting Canadians hide their money under the mattress. He says people need professional advice, and most financial advisers try to be professional and are as honest as any other group of Canadians.
The point of the book, frankly, is to alert people to the need for educating themselves where financial matters are concerned.
Pointedly, he says the average seven-year-old child in Canada knows more about sex than his or her grandparents know about investing. Thats a dangerous situation when vultures, jackals, ghouls and everyday thieves are after your money.
Vancouver Sun
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