The views expressed in this column are those of the author and not SVB Financial Group.
Who's that someone on the inside?
An undercover mole?
Too late to use a lie detector
Now some heads will roll!
- Matt Bianco
Recently, I had an email exchange with a long-time friend and bond broker with whom I've done business for more than 15 years. Our topic of conversation was the potential for the SEC to enforce a fiduciary duty on his industry. Effectively, this would erase the role of "salesperson" and replace it with "advisor."
The uproar, of course, is regarding all the shady Wall Street types who took advantage of Mom and Pop (and not a few CFOs) selling them securities that were — let's say — inappropriate. What these unsuspecting, ill-informed (though perhaps not uneducated) investors did was to place their trust in their salesman, expecting him or her to look out for the client's best interest.
My broker friend uses an excellent analogy:
"I think if you go into a Lexus dealership and huddle with one of the salespeople on the showroom floor, you expect to have him give you accurate and factual information about the Lexus line you are considering. However, you certainly would not expect him to chime in with how much more sophisticated and intelligently-designed the comparably-built Mercedes may be.
You'd expect that he would not be pitching a two-seater convertible to a pregnant woman who walks in with a child on each arm and one in a stroller looking for a replacement to her SUV as a single family car. And if he does, you simply walk out.
However, if he takes you to the Lexus SUV selections and gives you a full comparison between the models and all sorts of pros and cons, you expect that to be where his responsibilities end.
It then becomes your responsibility to go to Mercedes and BMW or Ford and have a similar discussion before making a decision. The Lexus salesperson ultimately has no fiduciary responsibility apart from giving you factual information and walking you to an appropriate car, given the directions he's given.
That also is why a registered investment advisor (RIA) is regulated differently than a broker.
If you were too busy to shop for a new car and decided to hire a personal assistant to take care of such things for you, you would then expect him to truly represent your interests when he goes into the Lexus dealer. The Lexus salesperson should treat him no differently than he would treat you... but you would expect your personal assistant to act in a much more fiduciary manner when he represents you.
There already are regulations in place that prohibit any bond salesperson from selling inappropriate products to clients — and that has nothing to do with any fiduciary role. If you, Joe Morgan, buy a bond from a Wall Street firm and the deal performs exactly as advertised — even poorly — that's often the end of the line.
But if the deal clearly performs in a manner that is inconsistent with how it was marketed, regulations are in place to pursue action. And I believe even those regulations will be tightened given recent proceedings. But that simply broadens currently existing regulations and applies them to currently-covered parties. Widening the net does not solve anything — and certainly not until existing regulations are fully enforced.
[As a money manager] you expect to be treated fairly and professionally... but you also understand that the salesperson has a job to do that may, in fact, not always represent your interests exclusively over his own. But the point is that you KNOW that."
The sales role is not evil. However, those investors who are completely trusting of their broker are tempting the devil. Instead of erasing the sales role, let's realize they serve a purpose not only in financial transactions but in most transactions.
People often ask me what the number one lesson the recent crisis is. To me, it's quite obvious: If you are not able to make managing your portfolio a full time job, then you need an advisor to help navigate Wall Street. And you need one who is required to put your interests above his or her own — a registered investment advisor (RIA).
To find out if you are working with an RIA, simply ask for their form ADV, which they are required to provide each of their clients on an annual basis. If they can't produce it, then they may not be looking out for your best interest.
The United States 2010 census report has our population at 308.7 million.
The final reading on third quarter GDP came in at 2.6 percent, lower than expectations which had called for 2.8 percent. Still, this number was higher than the earlier releases.
Personal consumption was also lower than expectations, although it was a good number at 2.4 percent. Consumption has been up five months in a row, giving some hope that the consumer is coming back. This holiday shopping season should lead to positive retail sales and consumer spending next month as well.
Both existing home sales and new home sales came in lower than the Bloomberg survey fell during the month of November, although on a percentage basis they were up 5.6 percent and 5.5 percent respectively. There are hopes that the housing recovery will begin late next year, but this will be dependent on banks' lending and employment improving.
The University of Michigan consumer confidence index continued its rise this month as the stock markets continued to gain and the spirit of the holidays bring cheer.
The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or SVB Asset Management, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction.
SVB Asset Management, a registered investment advisor, is a non-bank affiliate of Silicon Valley Bank and member of SVB Financial Group. Products offered by SVB Asset Management are not FDIC insured, are not deposits or other obligations of Silicon Valley Bank, and may lose value.