Fisher Investment Sued

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daytradah's picture
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Investment News had a story about Ken Fisher getting some arbitration action.
He was fairly arrogant about winning these cases involving older clients with 100% stock portfolios.  That they were going to run into a  cement wall....
 
He will be chastened in his estimation of the impenetrability of his documentation. If you move a trust of an elderly client that had bonds and CD's and you moved it into 100% stock .....U Gonna Fry, Spongebob Squarehead.

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B24
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Not necessarily.  Though I ardently disagree with Fisher's philosophies, as long as the client was well informed, they had the opportunity to either reject the proposed changes, or move their accounts.  Not that I like that defense, but that will likely be the defense.  In addition, Fisher manages investments in a very uniform way.  So he may get chastised for bad investment policy, but he has a consistent methodology.  It's not like he's some little Jones guy working out of his house that doubled-down on inverse-leveraged ETF's with his elderly clients, or embezzled money from them.

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B24 wrote:Not necessarily.  Though I ardently disagree with Fisher's philosophies, as long as the client was well informed, they had the opportunity to either reject the proposed changes, or move their accounts.  Not that I like that defense, but that will likely be the defense.  In addition, Fisher manages investments ina very uniform way.  So he may get chastised for bad investment policy, but he has a consistent methodology.  It's not like he's some little independant guy working out of his house that doubled-down on inverse-leveraged ETF's with his elderly clients, or embezzled money from them.
 
Just curious as to why you chose the "indy guy working from his house" to be the more likely candidate to do this?
 
An Indy with an S24 working from a suite in NYC could do it just as easy...so could a wirehouse, insurance, or EDJ guy.  
 
In every single one of those circumstances, the only people that could catch those trades would be the back office....and to insinuate that a company like LPL has any LESS compliance oversight in the back office is stupid.
 
Not trying to start a pi$$ing match, but a lot of people think the indy b/ds have basically zero oversight on their reps, and that's just not true.  An unsuitable trade is still an unsuitable trade. 
 
Now RIA is another story - at least as far as the custodian is concerned. 

bspears's picture
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come on Ice, its the Jones "we're better than anybody" snipe.  Just a another propaganda...

B24's picture
B24
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C'mon, c'mon guys.  I actually thought about that after I posted it and thought "oh, here we go".  No, I was just trying to paint the picture of someone shady, the point being that Fisher is about as "out there" for the world to see as you can get as far as advisory firms go.  In other words, they are not hiding anything.  It had absolutey NOTHING to do with "this channel" versus "that channel" or whatever.  We have clearly seen that no firm or channel has cornered the market on thiefs or cheats.
 
And I realize that any independant has as many compliance oversight requirements as any wirehouse guy.
 
Spears, I would think you should realize by now that I am not the indy-basher that some other Jones guys might be.  My post above was more about contrasting Fisher's firm with a little "solo" shop.  And since Fisher is, in fact, independant (actually an RIA I think), I was not downing the indy "channel".
 
Jesus, what am I saying.  I'm just gonna edit my post and be done with it.

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I'm not editing my quote...you're gonna be stuck defending that comment for 35 pages now! 
 
That's funny that you changed it to Jones though, lol.  Most of us know you are a good sport anyway.
 
I only posted because I know there are people on here, now and in the future, that have the impression that if you are Indy you can pretty much do what you want - and that's not the case (yes, I know you know that). 
 
bspears wrote:come on Ice, its the Jones "we're better than anybody" snipe.  Just a another propaganda...
 
Thanks Spears, this is the most cordial exchange we've had in awhile. 

Amp2Indy2006's picture
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Its too bad that 80% of us who do things the right way have to pay for the 20% who do not.  For the life of me, I just do not understand the knee-jerk reactions by SRO that punish ALL for the transgressions of the few.  (for SRO, include most b/d)

JoeNatlanta's picture
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you guys are missing the argument here, in my opinion...

RIA's (if that is what Fisher is) are governed by the Investment Advisor Act, and, by such, are automatically fiduciaries...meaning they must do what is in the best interest of the client. Having 100% stocks for an elderly client is not in their best interests. I think he's going to have a difficult time explaining this one...

Someone else see it differently?

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Well, I think he is not making the right investment call for that particular client. But the fiduciary responsibility is more about doing what's in the best interest of the client VERSUS what's best for the broker. In other words, if he kept a client invested because it meant more fees, then that would violate his fiduciary role. If he was just bad at making investments, then that's different. However, I would ASSUME that they have a very formal process for determining risk tolerance, explaing the investments to clients, etc. I think they are a very process driven firm.
Now, I may be way wrong on this, since I don't really know the facts. I am just assuming they cover their bases pretty well.

etj4588's picture
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Fiduciary responsibility goes beyond just whats in the best interest of the client versus the broker.  He will lose an arbitration if the risk tolerance doesn't match the investment portfolio.  So unless this retired couple had a risk tolerance of Aggressive (which I doubt), he'll be toast.  Even if it does match, he may still lose.

maddog's picture
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etj4588 wrote:Fiduciary responsibility goes beyond just whats in the best interest of the client versus the broker.  He will lose an arbitration if the risk tolerance doesn't match the investment portfolio.  So unless this retired couple had a risk tolerance of Aggressive (which I doubt), he'll be toast.  Even if it does match, he may still lose.
 
Well here is a question.......I have a client (64 year old lady) who has a low risk tolerance and needs income from her account. She draws the income from the dividends off of the stocks.  The account is roughly 8% cash and 92% individual stocks.  We meet monthly and discuss her tolerance every time.  She was down abut 40% at one point.  However, she will not sell any of the stocks.  So, she is an 'income with growth' investor with an 'aggressive growth' portfolio.  Other than continuing to document the conversations, what do you do?

Sam Houston's picture
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Why didn't you add some bond exposure for the income?

maddog's picture
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She inherited the account.  Came in 'in-kind'.  The husband's account is an advisory account and managed appropriately to his risk tolerance.  She, however, cannot bring herself to reallocate the account to her tolerance because she doesn't want to sell her mother's stocks.  It creates an interesting dilemma because she recognized her what her risk tolerance is.  So here is the question for compliance: Do you code the account according to her tolerance (that she says she is) or to the tolerance of the account risk level? 

Moraen's picture
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I had a 75-year old client who refused to have anything but equities in his portfolio.  It was all documented and when he tried to file a complaint it was denied (see Client complaint... DENIED!). 
 
I think until we know exactly what is going on, I will reserve judgment. 
 
As an aside, I don't see anything inherently wrong with a 100% stock portfolio.  My retired military clients usually have 100% stock portfolios.

maddog's picture
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Moraen wrote:
 
I think until we know exactly what is going on, I will reserve judgment. 
 

 
M,
 
Reserve judgment on what?

Moraen's picture
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Maddog - What's going on with the Fisher case.  I had something going on like that.  From the outside it looked like I fleeced a 75 year old guy (or 70 - can't remember anymore).  I think Ken Fisher is an arrogant ass, but we don't have all of the facts.

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Oh.  Sorry.  Didn't read your post.
 
Have the dividends on her stocks been cut?  If not, not sure what the big deal is.  Also, is that her only source of income (does she have a pension - she probably has social security right?)
 
If she is not bothered by the volatility, even with low risk tolerance, what is the problem.

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Moraen wrote:Maddog - What's going on with the Fisher case.  I had something going on like that.  From the outside it looked like I fleeced a 75 year old guy (or 70 - can't remember anymore).  I think Ken Fisher is an arrogant ass, but we don't have all of the facts.
 
Got it.  I thought you were commenting to the situation I posted about my client.

maddog's picture
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Moraen wrote:Oh.  Sorry.  Didn't read your post.
 
Have the dividends on her stocks been cut?  If not, not sure what the big deal is.  Also, is that her only source of income (does she have a pension - she probably has social security right?)
 
If she is not bothered by the volatility, even with low risk tolerance, what is the problem.
 
NCC now PNC, MS, ALL.  Yes, dividends have been cut.  Only other source of income is SS.  She is bothered by the volatility but she is emotionally attached to the positions and will not sell them. 

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maddog wrote:Moraen wrote:Oh.  Sorry.  Didn't read your post.
 
Have the dividends on her stocks been cut?  If not, not sure what the big deal is.  Also, is that her only source of income (does she have a pension - she probably has social security right?)
 
If she is not bothered by the volatility, even with low risk tolerance, what is the problem.
 
NCC now PNC, MS, ALL.  Yes, dividends have been cut.  Only other source of income is SS.  She is bothered by the volatility but she is emotionally attached to the positions and will not sell them. 
 
Yeah.  That's tough.  Had that problem my first year at Jones.  Best thing to do is explain to her that her and her husband's combined needs are not the same as her needs.  I'm sure you already have though.
 
Sucks a big fat one.  You want to help the lady, but her emotions get in the way.  I'm just not that good of a salesman to get someone to part with their attachment investments.

etj4588's picture
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maddog wrote:Well here is a question.......I have a client (64 year old lady) who has a low risk tolerance and needs income from her account. She draws the income from the dividends off of the stocks.  The account is roughly 8% cash and 92% individual stocks.  We meet monthly and discuss her tolerance every time.  She was down abut 40% at one point.  However, she will not sell any of the stocks.  So, she is an 'income with growth' investor with an 'aggressive growth' portfolio.  Other than continuing to document the conversations, what do you do?
 
Here's the difference between you and Fisher...
 
She is in control of her account.  Fisher could most likely be discretionary.

Wet_Blanket's picture
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maddog wrote:
So here is the question for compliance: Do you code the account according to her tolerance (that she says she is) or to the tolerance of the account risk level? 
 
It seems like if you code the account to her stated risk level, then you would get some suitability alerts.  Why not tell her to either a) recognize the risk level she insists on investing in and coding the account that way, or b) you'll have to fire her if she doesn't code the account that way (more aggressive) or start investing more appropriatel, or c) discuss with your favorite compliance officer (for tips on documenting / mitigating risk).

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Wet_Blanket wrote:
 
your favorite compliance officer
 

 
Oxymoron Alert!!!!!!!

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etj4588 wrote:Fiduciary responsibility goes beyond just whats in the best interest of the client versus the broker.  He will lose an arbitration if the risk tolerance doesn't match the investment portfolio.  So unless this retired couple had a risk tolerance of Aggressive (which I doubt), he'll be toast.  Even if it does match, he may still lose.
 
Good point.  I was just assuming that they prepared some sort of risk tolerance questionnaire or interview with the client.  I guess we don't know that answer.

jkl1v1n6's picture
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Document, document, document!!!

Wet_Blanket's picture
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Have you had the client sign anything acknowledging your advice but deciding not to follow it?

maddog's picture
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Wet_Blanket wrote:Have you had the client sign anything acknowledging your advice but deciding not to follow it?
 
I have all clients complete an Investor Risk Profile questionnaire.  I also have them update it periodically.  We meet monthly and document our meetings.

Wet_Blanket's picture
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maddog wrote:Wet_Blanket wrote:Have you had the client sign anything acknowledging your advice but deciding not to follow it?
 
I have all clients complete an Investor Risk Profile questionnaire.  I also have them update it periodically.  We meet monthly and document our meetings.
 
I would be sure that you have something specifically stating your advice, the client's refusal, and it being signed by the client.
 
You have the questionnaire demonstrating the client's low risk chararcteristics, then your meeting documentation - which will turn into a she said / he said argument. This will pushed by the firm to settle rather than spend the money to fight it in arbitration.

Moraen's picture
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Like I said, if you do a complete IPS and follow it, you should be fine. And document as well.

My guess is Fisher isn't stupid. I'd like to think that RegisteredRep forum users are the only smart guys in the business, but I'm almost positive that's not the case.

Lapide's picture
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As much as I dislike Ken Fisher, I once sent a reply to one of his magazine ads and he sent me material for about 1 year, it is too hard to say he is wrong by allocating 100% of his clients portfolio to stocks without knowing all of the facts.  Perhaps his 75 year old client has a liquid net worth of $2,000,000 with $1,500,000 in FDIC insured CD's at the local banks and $500,000 allocated to stocks in Ken Fisher's account.  If Fisher is doing his job, and I mean "if", then his portion of the money invested 100% in equities could be right on the money.  I don't know for sure that this is the case, but I wanted to put it our there.  That being said, I am constantly amazed when I ask "where else do you have money" and find out how many different places people keep it.  In the last 6 months I have even heard of people keeping large amounts of money at home "stuffed in the mattress"--seriously!

Lex123's picture
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Maddog,
 
Just get rid of the old biddy.  You don't need the headache and clearly you aren't making any money. 
 
Either that or man up and tell her that's it's your way or the highway.  Then if she doesn't agree you can kick her down the road.  I don't know about you, but I don't need clients that won't take my advice.

maddog's picture
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Lex123 wrote:Maddog,
 
Just get rid of the old biddy.  You don't need the headache and clearly you aren't making any money. 
 
Either that or man up and tell her that's it's your way or the highway.  Then if she doesn't agree you can kick her down the road.  I don't know about you, but I don't need clients that won't take my advice.
 
Husband has a $600k Advisory Driven account with me.  Two children have advisory-based account with me as well.  So, relationship is worth the headache.  Not a question about 'man'ing - up', was just a question of documenting suitability for HO purposes.
 

Wet_Blanket's picture
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The husband would probably be on your side (after some saber-rattling for the wife).  After all, he's married to her and knows all about her irrational behavior.

IndianaJones's picture
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Maddog,
 
You're suppose to code the account to the risk level the client said she is at. It's very important to document, document, document. Even if she nevers files a complaint herself, her heirs could later on--they may argue that she is elderly and you took advantage of the situation. Situations like this can get messy. Make sure that when you have your monthly meetings, you continue to discuss risk tolerance. Also make sure the client understands the risks she is taking--test her understanding, and document that understanding. You don't want someone down the road to claim she "agreed and/or continued" to the current strategy without fully understanding the risks...they often claim they deferred to the investment professional. Regulators assume the investment professional should know better. Remember...SUITABILITY!
 
Also, one other point...if you re-code the account for her stated risk tolerance, compliance's report will probably pick up the risk in the account. You may have to provide an explanation---they may also ask for documentation. From a legal/risk point of view, you should make sure the account is coded correctly- it can make a difference in arbitrations. Think about talking to your BOM about this situation.

exUBS's picture
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In arbitration, rocket scientists with degrees in mathematics are suddenly incapable of simple addition and subtraction.Notes, documentation, heads up conversations with management will save you later.

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