Shocking News: JP Morgan Tells Its Brokers to Only Push Proprietary Funds

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    JP Morgan: shocked by its emphasis on selling proprietary funds
    JP Morgan: shocked by its emphasis on selling proprietary funds

    The famous scene in “Casablanca,” in which police commissioner Captain Renault (Claude Rains) tells ex-patriate Rick Blaine (Humphrey Bogart)  that he is “shocked” to see gambling going on in the casino-bar, has earned its place in movie history.

    Now, investors will be similarly “shocked” to hear that JP Morgan’s brokerage arm is pushing its sales force to only sell its own proprietary funds at the expense of non-Morgan funds which may be better suited for its own clients.

    In this Investment News story, it is reported that “JP Morgan has been in the spotlight since last July (2012), when the firm pushed its brokers to sell internal products, even when outside funds may have been better options.”  This is no surprise since JP Morgan makes more money on its own funds than paying others to manage the money. Plus, Morgan gets to keep the client assets on its own books.

    And to add more insult to this deceptive practice, the broker who brought the complaint against JP Morgan brokerage said financial planning software was rigged to direct clients into proprietary fund products.  This must just another example of how Morgan’s billion technology budget is applied to retail investors.

    More of the Same

    The fact that JP Morgan’s brokerage arm is steering clients towards their own internally-managed funds is just old-school business.  After all, didn’t JP Morgan retirement executive Michael Falcon become tongue-tied during an interview on the recent PBS Frontline documentary, “The Retirement Gamble”when asked about the impact of fees on long-term fund performance and Vanguard executive John Bogle’s calculation that a fund fee of just 2% can erode two-thirds of a retirement account’s return over a 50 year investment lifetime. After sputtering for a few seconds, Falcon questioned the math. He then concluded his answer by saying “It’s complicated.”

    Aside from splitting atoms, pushing clients to buy proprietary funds is not complicated, but it is a great example of violating the fiduciary standard.  This is an old industry practice.

    CFTC: No evil here
    No evil here

    The WM Group of Funds (formerly owned by Washington Mutual, which became the largest bank failure in U.S. history), used an exceptionally lucrative revenue sharing scheme to push its own group of mutual funds on unsuspecting, unsophisticated savings-and-loan customers by offering a 150 basis point extra commission in the package of a revenue sharing “advisor paid fee.”

    Aside from being an exceptionally high enticement, WM advertised it to advisers as a way “to triple your trails” when it was combined with 12b-1 fees that were also being paid.  This was a great deal for advisers, but it left unsuspecting investors in the dust.

    So if fiduciary standard advocates want another recent example of how conflicts-of-interest are alive and well at the poster child of U.S. bank bailouts, look no further than JP Morgan.  Despite a $12 billion bailout using taxpayer money, JP Morgan still needs the extra revenues from unsuspecting, naïve retail investors.

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    Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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