| By :
Brian Fricke
Copyright (c) 2010 Brian Fricke Well, our friends in Washington DC pulled another fast one. No, I’m not talking about Obamacare. There’s a bill making the rounds in Congress called the “Restoring American Financial Stability Act of 2010”. There was also an ‘add on’ bill called the Financial Planners Act of 2010 that would have required anyone who held themselves out as a financial planner to register with a financial planner oversight board, meet a minimum competency standard, and most importantly, do business under what’s called a fiduciary standard of care. I say “would have” because, unfortunately, this piece of the legislation got the axe after intense lobbying by the brokerage and insurance companies. I can illustrate the reason why this kind of legislation is so sorely needed by telling you a true story. I’ve changed the facts and the circumstances, but this is a real-life example of what’s happening right now. There’s an 86 year old lady who worked with the same stock broker and brokerage firm for the last 10+ years. She wanted her money to maximize her income, which is very common, especially for this age group. She ended up buying what looks like every new issue of preferred stock this broker recommended, which his brokerage company had been hired to sell for the issuing companies. Never once, in 10 years, did she get a single sell recommendation! She was never invited in for a review and evaluation of her holdings or her situation. As far as we can tell, the only time she was ever contacted was when she had money to invest and the company had a new stock issue they were peddling. The sad part is, most of the preferred stock that she ended up buying were stocks of companies in the financial and the real estate sector. All this happened before 2008. And what happened in 2008? Everybody knows, but the two hardest hit sectors in the market were the financial and real estate sectors. And did she once get a call from the broker, or the brokerage firm suggesting she do anything to take cover; to protect what she had? Never! Not a single call, Nada! Her $600,000 account dropped in value to well below $300,000. Her income is down, not 50%, but more like 70 or 80% — because in addition to the value of the stocks dropping, the dividends on most of these preferred stocks were cut if not eliminated altogether. This was a big Wall Street company. They advertise on TV all the time. We don’t think the broker was out to get her. The broker probably thought they were doing a really good job, since they had been trained by the brokerage firm. But the brokerage firm – shame on them! They knew and understood what was going on. They made money at least twice. They made money underwriting (selling) the stock, creating the preferred stock offering for the companies. Then they made money again when they sold the stock to this 86 year old lady. They put their firm’s interests ahead of their client’s. And now she is paying the price. So much for Washington looking out for you!
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