Fisher Investment Sued

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May 17, 2009 10:21 pm

Investment News had a story about Ken Fisher getting some arbitration action.

He was fairly arrogant about winning these cases involving older clients with 100% stock portfolios.  That they were going to run into a  cement wall....
 
He will be chastened in his estimation of the impenetrability of his documentation. If you move a trust of an elderly client that had bonds and CD's and you moved it into 100% stock .....U Gonna Fry, Spongebob Squarehead.
May 18, 2009 10:09 am

Not necessarily.  Though I ardently disagree with Fisher's philosophies, as long as the client was well informed, they had the opportunity to either reject the proposed changes, or move their accounts.  Not that I like that defense, but that will likely be the defense.  In addition, Fisher manages investments in a very uniform way.  So he may get chastised for bad investment policy, but he has a consistent methodology.  It's not like he's some little Jones guy working out of his house that doubled-down on inverse-leveraged ETF's with his elderly clients, or embezzled money from them.

May 18, 2009 10:38 am

come on Ice, its the Jones "we're better than anybody" snipe.  Just a another propaganda...

May 18, 2009 11:24 am

C'mon, c'mon guys.  I actually thought about that after I posted it and thought "oh, here we go".  No, I was just trying to paint the picture of someone shady, the point being that Fisher is about as "out there" for the world to see as you can get as far as advisory firms go.  In other words, they are not hiding anything.  It had absolutey NOTHING to do with "this channel" versus "that channel" or whatever.  We have clearly seen that no firm or channel has cornered the market on thiefs or cheats.

 
And I realize that any independant has as many compliance oversight requirements as any wirehouse guy.
 
Spears, I would think you should realize by now that I am not the indy-basher that some other Jones guys might be.  My post above was more about contrasting Fisher's firm with a little "solo" shop.  And since Fisher is, in fact, independant (actually an RIA I think), I was not downing the indy "channel".
 
Jesus, what am I saying.  I'm just gonna edit my post and be done with it.
May 19, 2009 8:48 am

Its too bad that 80% of us who do things the right way have to pay for the 20% who do not.  For the life of me, I just do not understand the knee-jerk reactions by SRO that punish ALL for the transgressions of the few.  (for SRO, include most b/d)

May 19, 2009 9:43 pm

you guys are missing the argument here, in my opinion...



RIA's (if that is what Fisher is) are governed by the Investment Advisor Act, and, by such, are automatically fiduciaries...meaning they must do what is in the best interest of the client. Having 100% stocks for an elderly client is not in their best interests. I think he's going to have a difficult time explaining this one...



Someone else see it differently?

May 20, 2009 8:19 pm

Well, I think he is not making the right investment call for that particular client. But the fiduciary responsibility is more about doing what's in the best interest of the client VERSUS what's best for the broker. In other words, if he kept a client invested because it meant more fees, then that would violate his fiduciary role. If he was just bad at making investments, then that's different. However, I would ASSUME that they have a very formal process for determining risk tolerance, explaing the investments to clients, etc. I think they are a very process driven firm.

Now, I may be way wrong on this, since I don't really know the facts. I am just assuming they cover their bases pretty well.

May 20, 2009 9:47 pm

Fiduciary responsibility goes beyond just whats in the best interest of the client versus the broker.  He will lose an arbitration if the risk tolerance doesn't match the investment portfolio.  So unless this retired couple had a risk tolerance of Aggressive (which I doubt), he'll be toast.  Even if it does match, he may still lose.

May 20, 2009 10:17 pm
etj4588:

Fiduciary responsibility goes beyond just whats in the best interest of the client versus the broker.  He will lose an arbitration if the risk tolerance doesn't match the investment portfolio.  So unless this retired couple had a risk tolerance of Aggressive (which I doubt), he'll be toast.  Even if it does match, he may still lose.

 
Well here is a question.......I have a client (64 year old lady) who has a low risk tolerance and needs income from her account. She draws the income from the dividends off of the stocks.  The account is roughly 8% cash and 92% individual stocks.  We meet monthly and discuss her tolerance every time.  She was down abut 40% at one point.  However, she will not sell any of the stocks.  So, she is an 'income with growth' investor with an 'aggressive growth' portfolio.  Other than continuing to document the conversations, what do you do?
May 20, 2009 10:25 pm

Why didn't you add some bond exposure for the income?

May 20, 2009 10:34 pm

She inherited the account.  Came in 'in-kind'.  The husband's account is an advisory account and managed appropriately to his risk tolerance.  She, however, cannot bring herself to reallocate the account to her tolerance because she doesn't want to sell her mother's stocks.  It creates an interesting dilemma because she recognized her what her risk tolerance is.  So here is the question for compliance: Do you code the account according to her tolerance (that she says she is) or to the tolerance of the account risk level? 

May 20, 2009 11:48 pm

I had a 75-year old client who refused to have anything but equities in his portfolio.  It was all documented and when he tried to file a complaint it was denied (see Client complaint... DENIED!). 

 
I think until we know exactly what is going on, I will reserve judgment. 
 
As an aside, I don't see anything inherently wrong with a 100% stock portfolio.  My retired military clients usually have 100% stock portfolios.
May 21, 2009 12:01 am
Moraen:
 
I think until we know exactly what is going on, I will reserve judgment. 
 

 
M,
 
Reserve judgment on what?
May 21, 2009 12:10 am

Maddog - What's going on with the Fisher case.  I had something going on like that.  From the outside it looked like I fleeced a 75 year old guy (or 70 - can't remember anymore).  I think Ken Fisher is an arrogant ass, but we don't have all of the facts.

May 21, 2009 12:15 am

Oh.  Sorry.  Didn't read your post.

 
Have the dividends on her stocks been cut?  If not, not sure what the big deal is.  Also, is that her only source of income (does she have a pension - she probably has social security right?)
 
If she is not bothered by the volatility, even with low risk tolerance, what is the problem.
May 21, 2009 12:15 am
Moraen:

Maddog - What's going on with the Fisher case.  I had something going on like that.  From the outside it looked like I fleeced a 75 year old guy (or 70 - can't remember anymore).  I think Ken Fisher is an arrogant ass, but we don't have all of the facts.

 
Got it.  I thought you were commenting to the situation I posted about my client.
May 21, 2009 12:21 am
Moraen:

Oh.  Sorry.  Didn't read your post.

 
Have the dividends on her stocks been cut?  If not, not sure what the big deal is.  Also, is that her only source of income (does she have a pension - she probably has social security right?)
 
If she is not bothered by the volatility, even with low risk tolerance, what is the problem.
 
NCC now PNC, MS, ALL.  Yes, dividends have been cut.  Only other source of income is SS.  She is bothered by the volatility but she is emotionally attached to the positions and will not sell them. 
May 21, 2009 12:25 am
maddog:
Moraen:

Oh.  Sorry.  Didn't read your post.

 
Have the dividends on her stocks been cut?  If not, not sure what the big deal is.  Also, is that her only source of income (does she have a pension - she probably has social security right?)
 
If she is not bothered by the volatility, even with low risk tolerance, what is the problem.
 
NCC now PNC, MS, ALL.  Yes, dividends have been cut.  Only other source of income is SS.  She is bothered by the volatility but she is emotionally attached to the positions and will not sell them. 
 
Yeah.  That's tough.  Had that problem my first year at Jones.  Best thing to do is explain to her that her and her husband's combined needs are not the same as her needs.  I'm sure you already have though.
 
Sucks a big fat one.  You want to help the lady, but her emotions get in the way.  I'm just not that good of a salesman to get someone to part with their attachment investments.
May 21, 2009 9:12 am
maddog:

Well here is a question.......I have a client (64 year old lady) who has a low risk tolerance and needs income from her account. She draws the income from the dividends off of the stocks.  The account is roughly 8% cash and 92% individual stocks.  We meet monthly and discuss her tolerance every time.  She was down abut 40% at one point.  However, she will not sell any of the stocks.  So, she is an 'income with growth' investor with an 'aggressive growth' portfolio.  Other than continuing to document the conversations, what do you do?

 
Here's the difference between you and Fisher...
 
She is in control of her account.  Fisher could most likely be discretionary.
May 21, 2009 9:27 am
maddog:

So here is the question for compliance: Do you code the account according to her tolerance (that she says she is) or to the tolerance of the account risk level? 

 
It seems like if you code the account to her stated risk level, then you would get some suitability alerts.  Why not tell her to either a) recognize the risk level she insists on investing in and coding the account that way, or b) you'll have to fire her if she doesn't code the account that way (more aggressive) or start investing more appropriatel, or c) discuss with your favorite compliance officer (for tips on documenting / mitigating risk).