A smoothly functioning and honest investment industry is essential for our economy to flourish.
Thereby capital is allocated, enabling companies to exist/expand, and it permits the public to participate thereto. Yet, unfortunately, rampant corruption in the financial sector is interfering and causing untold damage.
Recently, a top official of a leading Wall Street firm resigned and recounted his sad experiences. Overall, he reported that the industry was “out of touch with reality.”
He argued investors too frequently are hit with disgraceful fees, and firms get together to prevent any undercutting of charges. Then too, because of their belief in entitlements, their expense accounts simply are outrageous, if not illegal.
The agencies that review bond or equity issues ignore reality and provide a good “report card,” totally unjustified by facts. Agencies then are rewarded with more business.
Sales people who “earn” enormous salaries and bonuses do not raise red flags at the excesses and abuses so prevalent in the industry.
A sales manager of one of the largest financial institutions told his sales staff to sell a product, some common shares, that he knew were “garbage” (he used a much more vulgar adjective), regardless of the lack of merit.
Others state that “even if clever institutional investors like pension funds realize that a deal isn’t worth buying, unsophisticated retail investors won’t know any better.”
That is a direct quote from a major firm. Furthermore, banks get paid millions of dollars to offer fairness opinions on proposed takeovers, while rarely raising any objections to any deal.
Experts say too many of us do not understand what is behind the investment advice we are being provided, and have no idea how much we are paying for it in hidden fees.
Frequently, the financial counsel investors are getting what is determined by the adviser’s needs, including a requirement on his part to keep that job.
Buying, selling and trading trigger high fees, a common way for an adviser to earn a living but a terrible way, too often, for the investor to make a profit. According to an article in The Globe and Mail, most investors are dissatisfied with the firms who should be offering assistance.
Clearly, there must be new models for customers and firms, to consider ethical standards. Equity markets are fraught with uncertainty even in the best of times, and more so now with the uncertain economy.
Long overdue are reforms ensuring investors at least are operating on a level playing field.