This was written by Kris Venne, the Certified Financial Planner in our Asset Management group:


Its 3:35pm on a Wed., your phone rings – it is your “advisor” over at MerFargonley. Conspicuously its pretty close to month end, say March 24th.

“Hey Mike! Hows it going? How’s Sandy (your wife)? How about little Mikey?”

Once you get through some of these oddly uncomfortable pleasantries, here it is, the reason for the call:

“So I was looking at your IRA account, and that social media UIT we got into (The friend  opportunities fund) comes due in a few weeks here and I wanted to talk to you about getting you out of it and into this emerging market dividends mutual fund.”

There is enough going on here for me to talk to you about that it does not even matter what happens the rest of the conversation.

First of all, the 1 year UIT that this  got you into came with a 3.25% upfront “sellers concession.” It was introduced to your “advisor” by a wholesaler who supplied his office with a free lunch and a 15 minute presentation. (It was baked zitti, salad, and a cookie tray – wasn’t great but who complains about lunch that just arrives in your office at 11:45?)

This wholesaler covers your “guys” territory, he travels back and forth across your state hitting brokerage offices along the way.

That particular day your “advisor” was pretty enticed by how good a social media fund sounded, the slides with pictures of grandparents logging into Facebook really was what did it for him. “This will be so easy to sell to my clients” he thought to himself “especially….[you].” So he told you to sell what remained of your Growth Fund of America for this UIT, ostensibly containing the next Apple. He took home an extra couple of thousand dollars in gross sales that month, and you dreamed of your next statement. So here you are, a year later, faced with the option of having him roll it into the updated version of the UIT (your “guy” would only earn about 1% on this “rollover”, not as exciting as what is coming next).

This new fund earns him a cool 5.75% of what is left. How can he do this you say? Because his compliance officer is not really going to bat an eye because he is not taking you from one 5.75% mutual fund to another, instead it is a totally different product he is switching you out of.

Awesome, you are that much closer to being ready for your golden retirement now!

This sort of crap goes on every single day, all day, across this country . . .

Category: Investing, Mutual Funds, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “The Mutual Fund Swap”

  1. [...] Your broker calls you to make a mutual fund swap. Here’s why:  (TBP) [...]

  2. louiswi says:

    IF, you have a broker, AND if you have not read Backstage WallStreet, you are truly the unarmed man in the most serious of gunfights. Also,

  3. mpetrosian says:

    I was an advisor at Merrill from 2005-2012 and all those things happened there but in my experience I found those practices to be pretty rare among my colleagues. In fact, compliance at ML came down pretty hard on those douche nozzles and I personally watched a couple of them get escorted to the parking garage. The widespread abuses I saw involved annuities, Consults, and C share practices. Truth is that ML and other wires are playing major catchup right now with fee only independents and in some ways they will be better at it when it comes to technology and client conveniences. Problem is they charge 2.5%+ when others are charging 1.25%. I’m seeing this swap bullshit when ACATing monies in from Pershing related independents like mine. The internal controls are not there and brokers can get away with murder. Good read though and all true. Also, isn’t it amazing how the wholesaler/broker circle jerk that happens across the country is never addressed in those ridiculous FINRA CE courses we’re required to take every year. No, I’m not at risk of dealing with Iranian oil money in my practice, but this greaseball from FirstTrust might be a problem.

    • 2005? You missed the golden age of this bullshit — the 1980s.

      Also, 1990s, but people were making so much money no one really seemed to care . . .

    • WiseBanyan says:

      Yup – I see this as well from the Pershing related independents. The irony is that by shining a light on this practice for clients gives us a way to win business from the bad guys out there.

  4. J says:

    My former boss used to coach this in open meetings — That’s how much they are afraid of FINRA — I was the only fee based advisor and considered a black sheep.

    Matter of fact a group of conscientious brokers ( read CFP ) left and sued. Despite the overwhelming amount of emails that made it obvious and that Dirty Jim ( he actually put this on the bottom of his emails ) was caught red handed they treated it I as an employee/employer suit and made the employees pay court costs.

    Question: if an employer can put pressure on do something unethical and illegal how is that not a factor ?

    Dirty said after that that ” we pay FINRAs salary”

    From what I’ve seen its rare that a broker wants to do the wrong thing, after all they have to face the results and the client It’s management who thru different kinds of techniques put pressure on brokers. Some it bothers and some it doesn’t. When you institutionalize behavior it’s not considered bad. ( Lucifer Principle )

    But, as long as there is a firewall between broker and management and bad behavior is always blamed on only the broker even if the issues are systemic then nothing changes in SRO world.