Counterparties: The broken brokerage industry
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Where the hell should you put your money these days? If youâ€™re like most Americans, you probably havenâ€™t savedÂ enough for retirement. That the stock market isÂ flirting with an all-time high isnâ€™t actually helpful — itâ€™ll make it that much harder for savers to catch up.
People used toÂ listen to brokers for this kind of thing, but the brokerage industry isnâ€™t what it used to be. â€śCommissions are drying up,â€ťÂ Zeke Faux wrote in October. The industryâ€™s fees are down 31% since 2009, Â and average daily volume is down 36%. â€śItâ€™s an impossibly tough business,â€ť the CEO of ThinkEquity said.
Into that mix, Nathaniel Popper reports, comes LPL Financial, which has quickly become the largest nationâ€™s fourth-largest broker, just behind traditional Wall Street powers like Merrill Lynch and Morgan Stanley. LPLâ€™s lower-cost model uses brokers that are â€śessentially contractorsâ€ť, and theyâ€™ve targeted rural America. Theyâ€™ve also been hit with more than their share of penalties â€śfor selling complex investments to unsophisticated investors, for speculative trading in customer accounts, and, in a few cases, for outright stealing from clients.â€ť
Unlike its competitors, the company doesnâ€™t have its own investment products. (JP MorganÂ has been accused of favoring Â its own financial products, but itâ€™s also a classic stockbroker conflict.)
Then thereâ€™s the question of whether you should use a brokerage firm at all — especially when lower-cost services like target-date funds orÂ Wealthfront do all the work for you and are showingÂ real promise.Â Mebane Faber reminds you that you are not a good investor — and, in fact, very, few people are. â€śSimply picking a stock out of a hat means you have a 64% chance of underperforming a basic index fund, and roughly a 40% chance of losing money!â€ť he writes. Howard Lindzon, on the other hand, argues stock-picking is ok — just make sure itâ€™s a hobby and that you donâ€™t care about underperforming benchmarks.
Tadas Viskanta has one of the best, linky rundowns of the new state of individual investing. His conclusion is ultimately similar to Helaine Olenâ€™s: almost every facet of the personal finance industry has lead us astray, from professional advisers to the traditionalÂ 60/40 portfolio. Hereâ€™s Viskanta:
In the end it may be the case that our financial goals are simply too ambitious and that we need to lower our sights. What is clear is that we as a society have failed and are continuing to fail the average saver.
– Ryan McCarthy
“The future of the euro zone has been put on the line for a few billion euros” – WSJ
Cyprus’s choice: “become a gimp state for Russian gangsta finance, or turn fully towards Europe” – FT Alphaville
Russia turns down Cyprus’s latest aid offer – Rueters
What are the Russianâ€™s playing at? – Felix
The rich give less than the poor, and when they do give, they don’t give to the poor – The Atlantic
Lose $6 billion in a very public way and you too could be lauded at a Wall Street awards dinner – WSJ
Betting against the London Whale was a “fairly easy and obvious trade to do” – William Alden
“Things to keep in mind when looking at buying a German castle” – WSJ
Google alerts are “broken” and “useless” – Venturebeat
And, of course, there are many more links at Counterparties.