In his analysis of the modern Wall Street wirehouse, Focus Financial Partners CEO Rudy Adolf concludes that large, full-service brokerages have inflated prices and manufactured fees to support their archaic business model.
Adolf begins his analysis by addressing high-commission structured products as one source of waste, finding that wirehouse firms "virtually always" tend to sell these products on a commission basis even when a cheaper alternative exists. He finds that of "at least 100 warehouse structured notes" analyzed, none were in the clients' best interests.
Second, Adolf claims that warehouses greatly mark up bonds. For instance, bonds in one $40 million portfolio had been marked up by $600,0000, all while the client was told about a "low management fee." When the client investigated further and found the alleged $600k skim, he switched to a new firm.
In connection with the mark-up strategy, Adolf states that "wirehouses rarely provide clients with access to the cheapest share classes," finding that excess fees and product costs of over 100 basis points, or one percent of principal.
Furthermore, when an customer is prevented from investing in a securities product most advantageous for that specific individual, the portfolio may suffer from depressed profits or unanticipated and dangerous risk.
According to the article, these brokerages rarely disclose the true extent of the fees, commissions and excess mark-ups or mark-downs charged, which are not in the best interests of the client and account for at least $50 billion lost in a $4.7 trillion big firm industry.
If you have invested with a broker or firm who you suspect is charging excessive commissions or fees, or whose failure to inform you of the true extent of such costs has proven harmful to your investments or financial interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
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