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Watch Out for Wall Street Favoring Themselves, at Your Expense

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One of the few bright lights on behalf of actual investors, Gretchen Morgenson’s columns in The New York Times often shine to reveal the selfish and false actions of the Wall Street crowd, stockbrokers, and hedge fund managers. We have devoted many comments on this site to informing investors of the slippery things that some stockbrokers and brokerage firms do to increase their own revenues at the expense of the customer investor. Gretchen Morgenson recently wrote about how some Wall Street hedge fund managers and stockbrokers give retirees the short end. Hedge fund managers, already terrifically highly paid by receiving a fee on the assets (the customer’s assets with the firm) plus a large fee on any profits.

As Gretchen Morgenson writes, the hedge funds give retirees the short end by obtaining discounts on their own legal services and other vendors but not obtaining those same discounts for the benefits of their own customers–the retiree investor’s with money in the hedge fund.

The the Wall Street managers buy their own lawyers at a discounted price but the customers pay a higher price. It is especially bad because one reason the lawyers (or other vendors) sell at a discount to the manger is because they know the manager will pay them a higher price when the customer (you) are paying. It is another example of Wall Street favoring itself over the investor, no matter what they say.

The hedge fund managers particularly want to keep their actions secret and confidential, saying essentially that their customers should just trust them. These discounts, revealed in S.E.C. documents as conflicts of interest, have drawn attention from the S.E.C. If these managers actually have the interests of the retirees in mind, where are their discounts?

Practice Point: One of the StockBrokerLawyer Ten Step Review of an investor’s losses includes a custom driven review, computation, and analysis of all charges, costs, and deductions to your account. In the cost analysis step, the costs are computed to show how much money you lost to charges and deductions by the stockbrokerage firm. Often, clients are surprised to learn that they lost significant dollars in their account to the costs charged by the stockbroker, not the market.–


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