As JPMorgan Chase was
increasingly getting into the managing function of mutual funds, the bank also
created and sold its own funds. I submit that these two tasks being done by the
same firm constitutes a structural conflict of interest, regardless of any
purported “Chinese wall.” In other words, a certain tension exists when the two
functions are performed by the same business entity because the incentives in
one of the two tasks (i.e., selling one’s own funds) inherently shirk the
viability of the other task (i.e., being a financial advisor). In particular,
the objectivity implied and even advertised in the latter is apt to be
relegated as the sales function kicks in. The “answer” to this ethical problem
is that a given bank should do one or the other, but not both tasks. Put
another way, only a fool tries to do everything—only a greedy fool.
Given the susceptibility of
the objectivity of acting in a customer’s best interest to the financial allure
of selling the bank’s own products, the “financial adviser” position at JP
Morgan Chase is at best a pretentious lie. “It said financial
adviser on my business card, but that’s not what JPMorgan actually let me be,”
said Mathew Goldberg, a former broker who now works at the Manhattan Wealth
Management Group. “I had to be a salesman even if what I was selling wasn’t
that great.” As though an alcoholic in perpetual denial, a bank spokesperson
affirmed regardless, “We always place our clients first in every decision.” The
word always itself belies the
truthfulness of the declaration. Such words are regularly included in certain
items in human resource tests in order to assess the validity or veracity of a
subject’s responses.
Disabusing us of the always and every
in the bank’s official pronouncement, the “financial advisers”
at JPMorgan “say they were encouraged, at times, to favor JPMorgan’s own
products even when competitors had better-performing or cheaper options. With
one crucial offering, the bank exaggerated the returns of what it was selling
in marketing materials, according to JPMorgan documents reviewed by The New
York Times.” The bank’s spokesperson would doubtless also insist that the
financial advisors are indeed advisors. The facts on the ground could be
completely opposite, and the misleading, self-serving statements would continue
unabated. “I was selling JPMorgan funds that often had weak performance records,
and I was doing it for no other reason than to enrich the firm,” said
Geoffrey Tomes, who left JPMorgan last year and is now an adviser at
Urso Investment Management. “I couldn’t call myself objective.” Hence, the bank's presumptuous use of the term, "financial advisor," can be reckoned as a lie of false entitlement.
Geoffrey Tomes admits to having favored the bank's own funds in "advising" clients
As an aside, the use of “guest” for customer at Target
evinces a linguistic error that managers regularly ignore as they presume their
company cannot be wrong. I don’t think I would be able to contain my laughter
were I to hear “financial advisor” and “guest” in the same sentence by a primp
(or pimped) banker at JPMorgan.
At the bottom of the conflict of interest at the bank is the financial benefit to the
firm in pushing its own funds under the subterfuge of "advising" customers. The bank made this expression into an oxymoron by making money the overriding goal. “The more money investors plow into the bank’s funds, the more fees it
collects for managing them. . . . Off the
top, the bank levies an annual fee as high as 1.6 percent of assets in the
Chase Strategic Portfolio. An independent financial planner who caters to
ordinary investors generally charges 1 percent to manage assets. The bank also
earns a fee on the underlying JPMorgan funds.” In other words, the incentives
in the sales function are such that an “advisor” aspect in any other position
at the bank is susceptible to the gravity. Lest any paper or Chinese walls be
presumed to protect the “advisors,” the business entity itself transcends such
“safeguards.”
In a structural or
institutional conflict of interest, two tasks are being done when one of the
two should be done. The refusal, even if tacit, to apply the self-discipline
that is necessary to give up one of the two functions is itself a vice (that of
having it both ways) in terms of virtue or character ethics. Continuing to do
both tasks, as if “We always place our clients first in every decision,” is
inherently unethical because of how the two tasks interact (the incentives of
one task undercutting the viability itself of the other task). As simple as
this is, structural conflicts of interest are strangely tolerated (or even
ignored) by modern society, as though by an alcoholic culture in collective
denial.
Source:
Susanne Craig and Jessica Greenberg, “Former Brokers Say
JPMorgan Favored Selling Bank’s Own Funds Over Others,” New York Times, July 2, 2012. http://dealbook.nytimes.com/2012/07/02/ex-brokers-say-jpmorgan-favored-selling-banks-own-funds-over-others/?hp
No comments:
Post a Comment