Does Anyone Else See the Double Standard?

Have you ever wondered why there are so many regulations and procedures in place for the securities industry? I mean, really, who ever reads through every page of a prospectus before buying a mutual fund or a stock? But a detailed prospectus is required to be developed for every investment, and provided to every person who is considering a purchase of that security. The reason is simple. Because products sold in the securities industry hold NO guarantees and the buyer assumes ALL of the risk in a purchase, the government has attempted to do all they can to protect the public by requiring as much disclosure about the risk of each investment before the purchase, and to protect the public from being swindled into buying illegal investments and cons.

With all of this regulation in place, there are still some types of fraudulent schemes uncovered regularly which have bilked innocent, albeit naïve and possibly greedy investors, of millions of dollars. Most recently I just read about a Ponzi scheme which is reported to have walked away with $317 million dollars from nearly 1,400 investors in 41 states over a 15 year period. In case you don’t know what a Ponzi scheme is, it is where a non-existent investment is sold to people, false reporting makes it look like their investments are making money, and any payouts or refunds are simply made by collecting new investor money. All the while, the crooks are pocketing most of the money and in the case of this one mentioned above, hiding it in ways that make it next to impossible to recover. It is the proverbial robbing Peter to pay Paul put into a sophisticated and elaborate process. Eventually every such plan will crumble, but not before many people have been harmed and lots of money has been lost.

False investments have taken on many forms over the years, and once a particular angle is revealed, the crooks come up with a new look or a new way to look legite in their efforts to appeal to the inherit greedy nature of people who are looking to find the big winners of the investment world, only to find that they really were taken in by a side show of smoke and mirrors.

But not only are illegal investments a concern, what about the illegal, or unethical use of legal investments? What about suitability in the securities industry? Is the placement of senior adults with fixed assets and limited income into any kind of risk instrument appropriate when ANY loss of asset value will directly impact their financial security, reduce their income, and erode their quality of life? What about the common practice of “recommending” trades to clients, when the only real purpose for the trade is to create a commissionable transaction for the broker? Every day brokers are practicing this illegal act of “churning” client accounts, but no regulatory authority is doing anything to stop them or even slow them down. It is an accepted way of doing business.

What about the enormously high compensation that people at the top of major Wall Street firms are paid? Recently I just read where the head of Lehman Brothers received a $40.5 million dollar payout. Are his services really that valuable to the firm, or is the firm just making so much money that they have that much to give away to the top execs?

How about the companies whose stocks we buy or hold within mutual funds in our investments and retirement accounts? We already know from our experiences with MCI and Tyco that it became common practice for large corporations to “cook the books” to inflate stock values, which eventually plummeted when the real accounting became public. Are we confident that when the market places a value on a security, that value is real, or is it fictitiously created to enrich a few at the expense of the masses, like the Enron scandal?

The reason that the securities industry has been able to become one of the most highly regulated industries in the nation, yet have one of the worst track records for abusive conduct, and still hold the admiration and trust of the public is a baffling curiosity of human nature. How is it that we can take such information in stride and still keep coming back to this fountain to continue to drink of this tainted water? I think it comes back to that same word I have used a few times previously, fueled by another of our less attractive human traits.

If you were to poll every single person who has ever put any money, in any form into the market, and you were able to ask them why they were willing to put their trust into a system that we know will predictably and periodically falter; a group of people whose entire reward system almost mandates that they become self-serving; companies whose actions have shown a disdain for individuals, the environment, ethics, and at times national security over their need for the “appearance” of a healthy bottom line; you would get, without variance, one single answer. Everyone who accepts these adverse conditions and overlooks all of these potential risks to their financial security is only motivated by one single reason—GREED!

But the story does not end there. It would seem that after someone got beat up in the market during a “correction” they would pack up their bags and go home with whatever marbles they have left. Nevertheless, people keep bellying up to the bar and coming back for more. Why do people inherently keep subjecting themselves to this risk, even if their experiences should have taught them otherwise? The other human trait that keeps us from admitting our mistakes and prevents us from changing our bad course of action is PRIDE.

The securities industry has successfully learned how to completely manipulate both of these debase human tendencies in order to convince investors to not only assume all risk for their losses, but to assume all BLAME for their bad investment decisions, and further to CREDIT all gains and profits to their broker. Amazing!

I guess when you have an industry that has been able to accomplish all of this, that it is not difficult to see how they have been able to distract the public attention from the REAL fraud and deceptive practices in their industry and get the media all worked up about the very legal and ethical sale of fixed indexed annuities to seniors by starting up a buzz about “suitability,” a key component of a securities sale, but not even a part of most insurance sales until recently. If you take time to check, you will find that while there are always some fraudulent securities schemes going on, there has NEVER been a fraudulent annuity sold, and there has NEVER been a company fraudulently posing as an insurance company. So every insurance product that has ever been bought in this country has been a very legal, fully approved product, offered by a fully approved carrier who not only has to meet state regulations for financial accountability, but is reviewed annually by a number of independent insurance rating agencies for financial strength and stability.

The most ironic thing I find in the way the securities industry has criticized indexed annuities is when they wrongly superimpose securities regulations over an insurance product. The two industries are completely separate, follow separate and unique regulations, and are controlled and supervised by totally different government entities. When the two track records are places side by side, it is clear which one you can trust and which one you need to be very careful about before you give them any of your hard earned money. The distinction is clear; you will ALWAYS be left holding the bag with a securities purchase, good or bad. But with insurance you are transferring your risk to the insurance company. If you can control your greed and swallow your pride, you may just realize that over time, your safe fixed indexed annuity can provide you all the return you will ever want, without you having to accept the risk, the fear, the uncertainty, and the sleeplessness that comes with the package of putting your nest egg into the hands of the securities industry.