More from the desk of Financial Expert Larry Elford and Unpublished Ottawa.
Investment broker-dealers use sleight of hand to exploit 100 million Americans
‘Card manipulation’ is the branch of magical illusion that deals with creating effects using sleight of hand techniques involving playing cards.
While watching a magician at the Los Angeles Magic Castle, I saw a card manipulation pro do amazing tricks for a five year old girl. She was mystified and certain that what she saw was real and that magic is possible. Absolute wide eyed certainty was on her face. (Effect - how a magic trick is perceived by a spectator)
It reminded me of the schoolteacher I spoke to this week who was concerned about her investments.
Her advisor had put all her investment holdings into a fee-based account, where she was charged 2% each year to ‘manage and advise’ her.
Investment Problem #1 was that she was being told to add 2% to her investment costs, every year. (2% compounded over the long term will cut your retirement funds by half, while putting the other half in the hands of your broker and dealer.
Investment Problem #2 is that she had already bought and paid for all her investments and faced considerable fees and commissions to do so. Not to belabour the point but she had already paid for her investments.
The dealer had simply devised a new way to charge her again. To effectively give themselves on an ‘annuity’ based on every dollar in her account earning them a fee, every day of the year. This smacks of taking a position of trust or influence over an investor's financial matters, and abusing that trust for the personal gain of the broker and the dealer.
Investment Problem #3 was that the advisor was faking his license, while cleverly hiding the fact that he held only the salesperson registration, otherwise known as a ‘broker’. This ‘un-prosecutable fraud’ allows commission hungry salespersons to dupe investors by purporting to be licensed fiduciary professionals.
These are not insignificant issues and yet they happen to millions of investors, without them being told of the scam. Furthermore, Investment Advisers are supposed to work for the client, and to solve problems for their clients not to cause problems for their cliensts.
She opened her computer in her home 1000 miles away and I opened my own. I walked her through the 30 seconds required to find the actual license/registration of her advisor.
I had to do this because without her actually seeing how the trick ‘worked’, something called ‘cognitive dissonance’ (fear of admitting/discovering we are easily fooled) steps in to assure most of us that we are too smart to be tricked so easily.
Most retail investors do not understand the differences between investment advisers and broker-dealers. They are forgiven for being in the dark, because the financial industry deliberately deceives more than 100 million North American investors.
Using sleight of hand, like a card shark or a con artist, the investment advisor of today is allowed to trick over 95% of American investors into a false sense of trust.
Imagine being allowed to lie to investors, in order to gain trust. This is the very same show that the con artist does for a living. Who knew is was standard investment industry practice as well? Who could even imagine? Magicians can. Securities lawyers can. Regulators can. But they are each bound to silence.
This investor was convinced that her advisor was real, that his skills were above her understanding, and that she was only protected if she placed herself and her family money in the hands of the advisor.
The trouble is that the advisor’(salesperson) who advises her on her money did not hold the professional standing adviser license and registration. Wait a minute…didn’t I already say that last line, just a moment ago?
It is time that I helped you spot the distraction. The magic of the con artist, or the magician is to weave a story based upon one or two facts, whilst distracting the audience in subtle and clever ways.
The distraction, performed in over 100 Million bank/broker/dealer accounts 
First, hide ones true license or registration from the customer, so they do not find out that you are a salesperson on commission.
Second change the title that you use by one letter, from the legally-meaning term “adviser”, to “advisor”.
That one clever ‘vowel movement’ allows a million commission sellers of stocks, insurance and mutual fund products to pretend to be SEC or state registered ‘advisers’.
It would be like having a career as a pharmaceutical company drug sales rep, and figuring out that one can easily triple sales if I portray myself as a Doctor. I gain greater trust, and more money by lying to my clients. Welcome to the standard daily practice of the 'self' regulated investment industry. See http://www.finra.org/about
One has a ‘do no harm’ oath, and the other sells products for commission. One charges approximately 1% and the fee is not subject to sales motivations or product incentives. One must work (by law) for the betterment of the client, and the other works (agency duty undisclosed) for the betterment of the dealer.
Train yourself to learn these key differences and how to spot the ‘trick’ being played on you, and one hundred million other Americans.
Product selling is not advice, and advice does not involve product selling. It is a clever hiding, of the agency duty, the duty to protect, serve and care for the customer, and hiding that a salesperson does not have this same duty to protect you. You are at the mercy of the #1 con in North America, while you are convinced that you are being served by a true professional. Do not feel bad. As I write this perhaps only 100 people in America even believe what I am saying, such is the power of a good con, to cause the victim to mentally ‘lock-in’ the impossibility of him or her being duped. That goes into a topic called ‘cognitive dissonance’.
For 600,000 commission sales brokers. http://www.finra.org/newsroom/statistics (The million number mentioned above also includes insurance and mutual fund registrants, many of whom operate outside the boundaries of FINRA)
After all, they work for a trusted financial firm, and they call themselves ‘advisor’. Isn’t it safe to assume that our government would not allow consumers to be lied to with such cleverness. Not it is not safe at all. Perhaps it was during the last century, but those days are gone.
Here are some of the links and backstory details for anyone who would like to dig a bit deeper. I hope that some readers will make a careful exploration of this material, and will contact me at firstname.lastname@example.org (in Canada) if you would like to correct anything here that needs correcting. I would be grateful for those who help me to better understand what I think to be the most costly consumer ‘bait and switch’ scam in the world today.
The first three minutes of the video below, it gives a glimpse into how the 'trick' looks from the perspective of a former industry insider. It is not John Oliver or Hollywood production values, just @RecoveredBroker in Canada trying to share my experience, strength and hope with others that they may not be taken advantage of. Cheers and thanks for helping this message find it's way to those who might benefit from it.