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Wall Street thriller 'Margin Call' is a cautionary tale -- even for RIAs

How the cinematic fall of a mighty Lehman Bros.-like brokerage is relevant to the RIA movement

Author Dina Hampton November 9, 2011 at 4:49 AM
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A Wall Street thriller points up potential pitfalls for the RIA movement.

Elmer Rich III

Elmer Rich III

November 9, 2011 — 4:50 PM

It is best to remember these truisms in pop media, movies, books, etc.

- The status quo is always supported

- Fear is the best attention getter

- Really, really simple ideas sell best — usually inaccurate ones

- Blaming and creating really, really simple demonizing and scapegoating “bad guys” covers all the above.

- Finally, reality is a lot more complex than any pop media can ever portrays and our brains can even comprehend

Like in investing — the pop media is usually wrong and the opposite is true. So Margin Call is pandering to our silliest ideas and beliefs and the opposite is probably true.

Likely most “evil” is done in financial services, and on Wall St. or any other institution or activity, by simple human error and inadvertent mistakes — not by bad actions or bad actors. But that would be a really, really dull movie, book or even article no one would pay any attention to, let alone money to read or see.

Dina Hampton

Dina Hampton

November 9, 2011 — 6:55 PM

Has anyone seen the movie? We’d be interested in hearing your reactions.

Stephen Winks

Stephen Winks

November 9, 2011 — 8:56 PM

I would like to believe the best interests of the consumer is first and foremost in the broker’s mind, and it is for our most accomplished brokers. Yet, it is the things beyond the broker’s ability to manage, controlled by their broker/dealers, that preclude fiduciary standing for brokers.

What influence does the best interest of the consumer and the broker have on the broker/dealer? Apparently none.
> Why is there no accountability for recommendations after the broker is compensated?
> Why is there no ongoing responsibility required of the broker to act in the consumer’s best interest, based on objective, non-negotiable fiduciary criteria of statute, case law and regulatory opinion letters?
> Why are preagreed upon arbitration proceedings in managing client disputes structured to absolve the broker from any responsibility for their investment recommendations?

None of these things are in the client’s best interest and have resulted in the loss of trust and confidernce of the investing public in the industry.

It is terribly unwise for the industry to acknowledge the fiduciary standing of the broker unless it is prepared to make adfvice safe, scalable, easy to execute and manage. The SEC has established it is the broker/dealers responsibility to support the fiduciary standing of the broker not each individual broker. Thus, if the industry does not support the broker to act in a fiduciary capacity—the culpability rests with the industry.

Could it be more clear?

Principled leadership is required, but where do we find it, given the brokerage industry’s push back against brokers acting in the best interest of the consumer?

How could FINRA be remotely considered a good steward of the trust and confidence of the investing public when it has abdicated its responsibility to properly insist the brokerage industry support the fiduciary standing of the broker?

What was so complex about doing the right thing five years ago, that suddenly now seems so clear? The difference is transparency and a very large number of consumers and advisors are not going to go along to get along and will insist that the best interest of the best interest of the investing public prevail.

The best interest of the investing public always prevails in a free market—the investing public is just awakening— opposing clearily delineated fiduciary duties in the consumer’s best interest is a loosing proposition.

If the industry does not respond in a serious manner in support of fiduciary standing, there will be open season on every brokerage account existant.


Elmer Rich III

Elmer Rich III

November 9, 2011 — 9:47 PM

Here’s the tricky part, well there are many tricky parts, how do we determine what is in the best interests of the client, and for what period of time/measurement?

What if what the client wants is not best for them long-term? Of for theiri family and future beneficiaries? What if something is best for the client today but not at retirement? “The road to hell is paved with good intentions.”

Perhaps, even, a professional acting “selfishly” may be best for the client in the long run. We just don’t know. These are questions we may never be able to answer.

We agree with the commentator above that the new “f” word, “fiduciary” is not a magic bullet for anything. Also, applying it to individual and retail accounts is something completely new in legal history and will take many, many years to test and adjust — if ever.

Also “The best interest of the investing public always prevails in a free market…” needs to be proven with data. For example, the stock markets of the so-called “socialist” countries are the most successful in the world.

In fact, if anyone is looking for clarity and simplicity in the vastly complex and accelerating world of global finance, and the US system is now firmly embedded in a global financial system and market, — best look for work in other businesses.

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