Steaming Mad about a Big Bank Con: Email from a Concerned Senior

Everyday I receive anguished emails from concerned citizens regarding the state of the economy, Wall Street, the political-financial system, and how their future stability is impacted by the powers that be. This one stood out for its clarity, as well as being indicative of one of the many ways in which the banking system regularly undermines people’s economic stability by targetting their savings accounts (which thanks to the Fed's zero-interest-rate policy receive no interest, and thus, no relatively risk-free returns) for high-fee asset management services.

The Clinton administration’s 1999 repeal of Glass-Steagall, plus the two prior decades of various measures that weakened the intent of this 1933 Act that separated banks’ speculation activities from deposit and lending ones, has enabled big banks to engage in all manners of trading, leverage, and ill-concocted investment schemes, while holding trillions of dollars of individuals’ deposits.

It was Charles Mitchell, head of National City Bank (now Citigroup) back in the 1920s that realized if his bank could corner the deposits of ‘the Everyman’, it would be better positioned to engage in the bigger transactions that would catapult it to a financial superpower, as well as use the accounts for additive domestic gain. Nearly a century later, this aspect of converting depositor/savers to commission-providing risk-takers, provides fees to bankers, absent true responsibility for any related downside (as in the ‘past behavior is not indicative of future results’ small print.)  

But people should not act upon the “guidance” of the investment advisors resident at the very big banks where they keep their savings and other money – this leaves too much room for manipulation of their trust and money. And if legislation and politicians won’t divide these two financial items, people must do so for themselves.

For the evolution of institutionalized, government and central bank supported speculation has left populations footing the bill for bets taken beyond their knowledge and certainly, control. Even those people that believe they are taking the prudent steps with respect to their own financial situations as they approach old-age, are victims of a churn-and-burn mentality that incurs unnecessary fees and bonuses for the perpetuators, at their expense.

Having checked with the writer, who prefers to remain anonymous, I am leaving the contents of this email intact. The writer wanted others to know “how the nation’s banks target senior citizens and steal their life savings.“  These are the warning words I received from one of America’s seniors:

“Unlike many of the banks’ other schemes, this con is entirely avoidable if seniors and their families knew what to watch out for.

Here is how it works:

1. You are a conservative saver, and you have a large amount of money in the bank.  Since you are a “valued customer”, the bank gives you your own personal financial representative, with whom you build a relationship over time.  But this person is not on your side.  He will prod, coax, and sweet-talk you into moving your savings over to the bank’s investment arm.

2. If you do move your money over to the investment bank, your financial advisor will charge you high management fees (upwards of 1% of assets per year).  Moreover, you will pay big commissions on top of that.  But these won’t be disclosed as commissions – they will be incentives disguised in various ways that are buried deep within the fine print.  Since you don’t know about these, and since you trust the paid professional you’ve hired, you will be an easy victim.

3. Because of these incentives, your advisor will dump investments into your portfolio that may include: funds of funds (which charge layers upon layers of fees), IPO offerings that the bank can’t manage to sell off, complex structured products, variable annuities, and the like.  Anything the bank wants to get rid of, wishes to hawk, or gets a kickback to sell will be dumped into your account.  All the while, your advisor will be assuring you that these are excellent investments.

4. The result will be that you will almost certainly do worse than the market overall – at the very least, by the fees and commissions you pay (commissions that have been taken  –  stolen! – without your consent), and at worst, by scorching losses obtained via inappropriate investments.

5. If you figure out what has happened (and most people don’t, they will think that the market just did badly), you will have little recourse.  The bank will have forced you to sign a mandatory binding arbitration agreement that shuts you out of the court system.  Even if the bank has committed fraud, forgery, etc., it doesn’t matter.  The courts are closed to you.

6. If you manage to obtain a settlement or get a judgment from the arbitration forum, the results will almost certainly be kept confidential.  Therefore, the goings-on are kept quiet, and the banks can continue their practices unabated.

The victims of this fraud are not doing anything wrong or unreasonable.  They are working with large national banks.  They are hiring certified financial planners.  They are paying high management fees, so there is no expectation of anything “free”.  They are asking good questions and being reassured that their financial advisor is looking out for their best interest.  But they are being swindled nonetheless – because they don’t know about the hidden incentives, because they are unable to differentiate good investments from bad ones, and because they are being reassured by their advisor about how well they are doing compared to the market, even if the opposite is really true.

These are professional con men that are swindling millions of seniors, every day, all over the country -- decimating their life savings in their final years. 

I know, because I have seen it happen.  And I am mad.  Steaming mad.”

This writer is not the only one that is steaming mad. So are millions of people - retirees that don’t have the luxury of ‘making it back’ and workers that aren’t getting paid enough to leave unnecessary money ‘on the table’ of brokers and advisors whose best interests are institutionally and legislatively their own. Heeding the warning in here, and separating one’s bank deposits from the bank’s asset management arm that views them as fee-fodder, would be one way to protect against the damage that this regulatory fusion of bank practices causes.

Comments

[7Towers]

Nomi, It is astounding what continues to play out in the economy and the injustices already exposed have surpassed the threshold of unacceptable and insane practices and yet the current atmosphere continues on without missing a beat intensifying practices that are even more deplorable . The Gov, banks , regulators , sec , congress and medias all are depraved, degenerate , morally bankrupt and insane.
They have done nothing to correct such egregious acts except to blow smoke and any actions that have been taken were to bolster even expanding policies of more dubious natures couching them in deceptive terms designed for the public interests to rectify mass fraud done. The results of these promises were to further gouge and plunder the public along with various programs allocating trillions of dollars to provide help for people. What these programs provided sending people on wild goose chases running in circles very little of the allocated trillions going to "the people" as to where it went was to incompetent hands . .. It has become a sick joke

.Capitol hill and those that inhabit A Corruption of power so complete its sole aim becomes the protection of its reign sacrificing integrity to such a degree that life becomes unsustainable and in the ensuing state of insanity is nearly incapable of recognizing this.

[Ed_B]

I do not doubt the veracity of the comments in this letter one bit. I am a self-trained financial adviser who helps a few friends and some family members manage their money. I do not charge a fee for this but if the recipient of my time wants to provide a meal or a drink from time to time, I am fine with that.

I have prevented a number of people from purchasing variable annuities that were highly inappropriate for the individual who was targeted for the sales pitch. The fees for these annuities were scandalous and its recent performance abysmal.

Another person had an old state agency revenue bond paying 8% interest sold without their permission and a new bond purchased for that account that paid only 4% and was not backed by any revenue stream. I had to threaten legal action to get the lost money returned. I then withdrew all but $5 from her account because this national brokerage house insisted on a $50 fee for closing the account. Shameful as this episode was, I can readily believe that this is not atypical of the financial "advice" industry.

[dannyboy]

Nomi,

You are doing a real service by exposing the lie that bankers and government can be trusted.

I do realize that it is a huge step for people to make to start believing that the banks and the government are working against them. The concrete examples that you provide help readers see this abuse for themselves.