Wall Street WARZONE
Fund Company Owners: Millions Lost 37% While Owners Gained $2 Billion
by Paul B Farrell, JD, PhD
| Discuss | Print | 5/7/2010

They operate by casino rules that they invented and they manipulate while managing over $10 trillion of your assets. If you play by their rules, you will lose. Guaranteed. Examples: During the 2000-2002 bear market, one manager paid himself $47 million while his shareholders lost 43%. At the same time, the equity fund shareholders of Fidelity Investments lost 37% while Fidelity‚Äôs two major owners saw their net worth increase from $11.1 billion to $13.2 billion between 1999 and 2002. In 2006 they were worth $20.5 billion while their shareholders have barely broken even the past seven years. As Vanguard founder, Jack Bogle, put it in The Battle for the Soul of Capitalism: “The business and ethical standards of Corporate America, of investment America, of mutual fund America have been gravely compromised.” (More)

Jones vs Harris: Supreme Court Screws 95 million Main Street Investors, Favoring “Casino Croupiers” (Rich Owners!) Ripping-Off 35% of Your Returns
by Paul B Farrell, JD, PhD
| Discuss | Print | 5/6/2010

America’s pro-management/anti-investor Supreme Court’s at it again. Read columnist John Waggoner’s “Mutual fund fees case goes back to lower court” in USAToday. In essence, the Court has once again approved of big owners siphoning off a third of the profits from America’s 95 million Main Street investors’ money. That’s what Vanguard’s founder Jack Bogle has been telling investors for decades. Owners get away with it. The SEC’s no help. Now the Supreme Court again agrees! Bogle compares fund company owners to Vegas gambling “croupiers,” where the “house always wins” by raking one-third off the top of the Main Street investor’s returns. Their scamming has been going on for decades, and still, our conservative pro-management Supreme Court rules in favor of Wall Street and the fund owners, just as they did in the 1982 case:

The Supreme Court decided by a 9-0 vote Tuesday to send a lawsuit challenging high mutual fund fees back to a lower court, a move that both sides hailed as a victory. In Jones v. Harris Associates, the plaintiffs alleged that Chicago-based Harris Associates overcharged shareholders in the Oakmark funds, which Harris manages. The plaintiffs, three Oakmark shareholders, said that Harris charged Oakmark shareholders nearly twice what it charged big institutional investors for essentially similar services. … The court ruled that courts must use the guidelines set out in a 1982 case, Gartenberg v. Merrill Lynch Asset Management, to determine whether fund fees are excessive. In Gartenberg, a lower court found fees must not be so large that they bear no relationship to the services rendered and could not have been the result of arm’s-length bargaining.

So your mutual funds can keep charging you as much money as they darn well please, as long as they can manipulate the numbers and don’t get caught. Fund company owners love the decision. Some contrarians note that the high court added: “Fund boards should take into consideration fees charged to institutional investors,” which are lower. But don’t count on it. For more, read Anna Prior’s article, “The Hidden Costs of Mutual Funds,” in The Journal. Like Bogle, Prior exposes more about the fund companies’ endless numbers game: (More)

“Slash & Burn!” Warning, Wall Street’s New “Growth Model” is Secretly Stealing More Fees & Commissions from Naive American Investors!
by Paul B Farrell, JD, PhD
| Discuss | Print | 4/9/2010

Not only are Wall Street’s “too-greedy-to-fail” banks milking their retail depositors and credit card holders to the max, they’re drastically cutting investors services says Mark Elzweig  in InvestmentNews, ”Slash and burn: The new Wall Street growth model.” Elzweig, president of an executive search firm, has been working with money managers and financial advisors for over 25 years. He sees a seismic shift dramatically changing Wall Street:

“After a decade of pushing fee-based services, Wall Street is slashing and burning the infrastructure that has supported the business. The moves threaten to damage the long-term health of the wirehouse [national network of brokerage firms] business model for financial advisers and their clients. “On the new Wall Street, wirehouses are gutting the home office staff that has driven the growth of fee-based business. Successive rounds of layoffs have shrunk manager research departments, key accounts, product management and field wholesaling teams. One major wirehouse recently nuked its popular adviser coaching department, which was staffed by more than 30 highly experienced professionals. Also greatly reduced: specialized sales forces for retirement planning, wealth management, alternative investments and separately managed accounts. At one firm we know, one person – a jack-of-all-trades – has replaced a field team of 10 specialists. Even getting a simple phone call returned from the home office is turning into a trial. Forget about one-on-one attention.” (More)