On the Kiefer order.
Products with back-end commissions, such as those for which Little Rock financial adviser Steve Kiefer was disciplined, provide an opportunity for clients to be misled. Without a full explanation of higher annual fees, contingent deferred sales charges and "breakpoints" for quantity discounts, a customer might naturally assume that no front-end cost is the way to go.
However, it has been my experience that fewer than 5 percent of customers make that choice once everything is explained. If a mutual fund salesperson is more concerned about his own welfare than the customer's, how detailed will that discussion be? A deceitful salesperson could easily take advantage of unsophisticated customers (and some who are more sophisticated).
According to the Arkansas Securities Department's consent order fining Kiefer $50,000, millions of dollars were involved. If as little as $4 million or $5 million were invested in Class B shares vs. Class A shares with appropriate breakpoints, the customers may have paid more than $50,000 in extra commissions. The fine would not be a penalty, but rather a disgorgement of excess commissions.
How can ASD protect future customers from this type of deception? It will demand customer signatures on a form that states that everything has been explained. And that may help in some situations, but customers do not always understand everything they sign. And those who are willing to deceive in one way are most likely willing to deceive in another. We cannot make a regulation that creates an honest man.
Kiefer's investors are the ones who were harmed, yet they are not being compensated in any way. Knowing the total amount invested would allow a reasonable estimate of monetary savings the customer should have received. lf it were you, would you rather receive an estimated refund or a statement that it couldn't be calculated?
Simmons First Investor Services
Raymond James Financial Services Inc.
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