FEATURE/Escalating Mutual Fund Scandal Should Make Brokerage Clients Wary.Business Editors/Legal Writers FEATURE... NEW YORK--(BUSINESS WIRE)--Jan. 14, 2004 Securities arbitration lawyer and author, Daniel R. Solin, issued a statement today indicating that the escalating mutual fund scandal should make brokerage firm clients wary of dealing with brokers at all. Solin is the author of: Does Your Broker Owe You Money? (Alpha Books) and a securities arbitration lawyer representing investors nationwide. The second edition of his book will be published in March, 2004 (Silvercloud). According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Solin: "Today's disclosure by the SEC that it has uncovered widespread instances of brokers receiving undisclosed payments for steering investors toward specific funds is further evidence of the conflicts of interest inherent in the broker/client relationship. The fact that these alleged payments were not disclosed to investors will come as a shock to those investors who still believe that "their broker" is giving them independent advice that is free of conflicts of interest. This unwelcome news, coupled with the analyst scandal, the market timing scandal and the conduct of at least one major firm that gave undisclosed incentives to its brokers who pushed in-house mutual funds on their unsuspecting clients, is yet another reason why investors should be extremely wary in their dealings with brokers. There is compelling evidence that most investors would be better off using fee based registered investment advisors Registered Investment Advisor (RIA) is a designation obtainable in the United States by an individual who has registered with the U.S. Securities and Exchange Commission or state regulatory agency (where the primary business is situated or multiple States in some cases) in who believe in low transaction costs Transaction Costs Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). , broad asset class diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. and the use of index and passively managed funds. There is scant scant adj. scant·er, scant·est 1. Barely sufficient: paid scant attention to the lecture. 2. Falling short of a specific measure: a scant cup of sugar. , if any, data supporting much hyped brokers' claims that they can pick undervalued stocks An undervalued stock is defined as a stock that is selling at a price significantly below its intrinsic value (finance). For example, if a stock is selling for $50, but can be determined to be worth $100 based on future cash flows, then it is an undervalued stock. or time the market. To the contrary, the overwhelming evidence is that brokers add cost and subtract A relational DBMS operation that generates a third file from all the records in one file that are not in a second file. value over the long term. The bottom line is that these conflicts of interests and inability to add value should cause investors to ask themselves: Why should I use them?" |
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