Is regret good enough reason to sue?

[tenant13]

Panel awards $3.8m to ‘mom and pop’ investors whose risky investments tanked

Florida investors featured in Guardian investigation claimed they lost most of their life savings after a financial adviser put their money into ‘alternative’ assets

www.theguardian.com

I’ve read this article with mixed feelings. We are all pretty suspicious of financial advisors and risky investments - but not everyone is Bernie Maddof. I myself am a big fan of alternative investments and if things go wrong (as they have) I humbly admit to myself: that was dumb, I was greedy and now I’m paying the price.

I’m not quite sure what this particular advisor told and promised his clients - it very likely could have been a blatant lie, a fraud even - but I also feel we do have responsibility for our own actions - like believing promises that are too good to be true.

 

[COcheesehead]

I’ve read this article with mixed feelings. We are all pretty suspicious of financial advisors and risky investments - but not everyone is Bernie Maddof. I myself am a big fan of alternative investments and if things go wrong (as they have) I humbly admit to myself: that was dumb, I was greedy and now I’m paying the price.

Your comments and the linked article seem to be about two different things. The article talks about overcharging at Dollar stores.

 

[tenant13]

Your comments and the linked article seem to be about two different things. The article talks about overcharging at Dollar stores.

Ah, yes. Thank you. Fixed.

 

[Onda]

Most retirees do better with boring, transparent portfolios — diversified equities, bonds, cash reserves — rather than products whose payoff even many educated investors struggle to fully model.

If simple portfolios work best for most retirees, why push complexity into 401(k)s?

 

[VanWinkle]

Buyer beware, this type of sale to uninformed buyers happens everyday. Of course the article throws in some political jabs that the site is well known for.
Structured products are great for the advisor, not so much for the investor.

 

[Gumby]

As the old saw goes, anyone who has a grudge, can pay the filing fee and has a typewriter can commence a lawsuit. Winning is an entirely different proposition. And, in any event, this was an arbitration award, not a court judgment.

I don't presume to judge the merits of the claim, but to my mind, there are three main factors at work in this case:

1. A lot of people have somehow become imbued with the lesson that investing is some big mystery that they cannot possibly do by themselves.

2. A lot of people don't really want to learn new and unfamiliar things or think too hard. They want someone to take care of them.

3. There will aways be charlatans who take advantage of factors 1 and 2 to line their own pockets.



And there is one corollary that applies to all of us, me included: If you don't understand it, you shouldn't invest in it.

 

[freedomatlast]

Sadly, these days, every misfortune is somebody else's fault.

 

[Texas Proud]

There are a few things that can be said on both sides...

First, if they were investing all or most of their investments in alts then that is a red flag... you need diversification... and even 'old' folks should know that..

The investments were for more advanced investors... that is a strike against the FA if they were not...

Next, I do not think it is Schwabs job to monitor what they own when they have a FA advising them... I think they went after the wrong entity, but they are the deep pocket...

 

[Aerides]

Three things stand out from this piece:

• This was a group of several individual investors all impacted by one FA. Not other FA's, all this one dude, so that's a bit of a pattern and more than just one person claiming issues.
• The products he had them in were known to be riskier, and "the adviser put them into “structured products” – a risky combination of bonds and derivatives that regulators have flagged as requiring “heightened supervision” by brokerage firms."
• Schwab apparently failed to supervise these investments and this broker.

It sounds like the FA was a contract/independent/3rd party broker, using Schwab as many do, but Schwab didn't do the due diligence that they are required to by standard regulatory practices.

To me, that combination is a bit more than "buyer beware" and I've no doubt there was some interesting testimony in what this advisor actually said to his then clients.

 

[athena53]

And there is one corollary that applies to all of us, me included: If you don't understand it, you shouldn't invest in it.

Yes. That has worked well for me.

It scares me that now you can apparently invest IRA and 401(k) money in private equities. I'm now hearing a commercial on financial podcasts about a fund that lets you invest in them. The pitch, of course, is "Now you can sit at the table with the big guys". I suspect the big guys are giving the sketchier opportunities to the naive capital investors.

 

[donheff]

The advisor seems most to blame but wasn't part of the suit - going for the deep pockets? It's a FINRA arbitration board, so presumably the arbitrators are knowledgeable enough to assess the duties of oversight expected from the brokers.

 

[MRG]

The industry has its share of cheap suits. I'm of the opinion to lock them up together and let them barter for not enough food.

Put it on PPV and let them pay back who they screwed over.

Me and 9000 of my peers were screwed over by ignorant people who shouldn't be involved in the industry. I have little tolerance for people who hurt others. Many of us were ok, but some of these people were dead by the time the court could act.

 

[Spock]

As the old saw goes, anyone who has a grudge, can pay the filing fee and has a typewriter can commence a lawsuit. Winning is an entirely different proposition. And, in any event, this was an arbitration award, not a court judgment.

I don't presume to judge the merits of the claim, but to my mind, there are three main factors at work in this case:

1. A lot of people have somehow imbued the lesson that investing is some big mystery that they cannot possibly do by themselves.

2. A lot of people don't really want to learn new and unfamiliar things or think too hard. They want someone to take care of them.

3. There will aways be charlatans who take advantage of factors 1 and 2 to line their own pockets.



And there is one corollary that applies to all of us, me included: If you don't understand it, you shouldn't invest in it.

Not every one can DIY.

My wife can run a checking account to pay bills received via USPS mail. That's it.

When I die first, her intent is to cash out all IRAs (she doesn't understand them) and move all of our lower 7 figure savings into the checking account paying 0.00% interest.

 

[latexman]

When I die first, her intent is to cash out all IRAs (she doesn't understand them) and move all of our lower 7 figure savings into the checking account paying 0.00% interest.

Ditto, my DW. I may get Fido to manage it if my health takes a turn for the worst.

 

[rk911]

Most retirees do better with boring, transparent portfolios — diversified equities, bonds, cash reserves — rather than products whose payoff even many educated investors struggle to fully model.

If simple portfolios work best for most retirees, why push complexity into 401(k)s?

Completely agree. K.I.S.S. That and a long term strategy, dollar-cost averaging, good low cost mutal funds, buy and hold, is, or at least for us, was a winning strategy. And our FA until a few years ago was Bob Brinker, other sources and us.

 

[Lorenzo]

And this is why my former FA who operated through Schwab's independent FA affiliate program--apparently like the plaintiffs in this article--had me invested in nothing but plain-vanillas VTI, BND, VEA, etc. A Boglehead-ish no-brainer portfolio. I had to come here to learn about the wide world of investments, including these so-called alternative investments.

When I was a practicing lawyer we had a saying, "The other side can't hurt you; only your client can hurt you." Advise against risk and you'll be golden.

 

[Midpack]

If it's too good to be true, it usually is. I certainly read some of these stories and feel empathy for the victim, but more often I feel the victim should have known better according to the adage above. If someone has a great idea to make money, you have to ask yourself why they are trying to share it with everyone.

 

[jazz4cash]

The advisor seems most to blame but wasn't part of the suit - going for the deep pockets? It's a FINRA arbitration board, so presumably the arbitrators are knowledgeable enough to assess the duties of oversight expected from the brokers.

The amount of the award is trivial and the real bad guy is excluded from the case. This is high level industry self regulation at a time when gov’t regulators seem to be favoring big money interests over individual investors. Current proposals are not just accepting alts in retirement plans, they are doing it in a manor that relieves custodians of fiduciary responsibility. FINRA is sending a warning shot to members. 4M is barely a tap on the wrist for Schwab but it’ll get their attention. Do they vet advisors that custody with them?

 

[SnowballCamper]

Wow. On the one hand it's just a money grab going after the big firms while the advisor goes on to become his own compliance officer.

The adviser, Mario Payne, used Schwab and Ameritrade – which Schwab purchased in 2020 – to execute his trades. Payne was not named as a defendant, but the investors alleged misconduct by him in their claim.

Payne is no longer associated with Schwab. His regulatory records indicate he is currently the chief compliance officer for the investment advisory firm he owns.

On the other hand, the state of financial advising is a snake pit, as most of us know.

 

[COcheesehead]

…had me invested in nothing but plain-vanillas VTI, BND, VEA, etc. A Boglehead-ish no-brainer portfolio.
Advise against risk and you'll be golden.

Those investments also have risk. You may not see it that way, but they do.

 

[sparky08]

From the article:

An arbitration panel with the Financial Industry Regulatory Authority (Finra) ruled last week that three financial firms – Charles Schwab & Co, TD Ameritrade Clearing Inc, and TD Ameritrade Inc – should compensate the Florida investors, who had alleged that Schwab had failed to properly supervise the adviser.

The adviser, Mario Payne, used Schwab and Ameritrade – which Schwab purchased in 2020 – to execute his trades. Payne was not named as a defendant, but the investors alleged misconduct by him in their claim.

So the advisor wasn't named as a defendant, but Schwab and Ameritrade were

Shouldn't the advisor bear the brunt of the responsibility?

 

[pb4uski]

I read the article and am struggling to figure out what Schwab/TDAmeritrade did wrong, the they were obviously deeper pockets that this flaky FA.

 

[Dtail]

Not every one can DIY.

My wife can run a checking account to pay bills received via USPS mail. That's it.

When I die first, her intent is to cash out all IRAs (she doesn't understand them) and move all of our lower 7 figure savings into the checking account paying 0.00% interest.

At least talk to her about an Ally type of account.

 

[TripleLindy]

Understanding that there’s risk in every investment, that legislation that was passed allowing “alternative” investments in 401k portfolios was just another way to pay Wall Street.

 

[Quattro73]

I wonder what the exact investment products are? Structured products is pretty broad.
I’ve dabbled in the buffered ETF’s which could be considered a recent evolution of structured notes.

Similarly, Raymond James and I believe other firms were hit a few years ago (per Covid…probably 2018/2019 timeframe)for overloading clients into MLP’s which were all the rage for income in the beginning of the shale boom in the 2008/2009 period.