Counterparties: The broken brokerage industry
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Where the hell should you put your money these days? If youâre like most Americans, you probably havenât savedÂ enough for retirement. That the stock market isÂ flirting with an all-time high isnât actually helpful — itâll 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 isnât what it used to be. âCommissions are drying up,âÂ Zeke Faux wrote in October. The industryâs fees are down 31% since 2009, Â and average daily volume is down 36%. âItâs an impossibly tough business,â the CEO of ThinkEquity said.
Into that mix, Nathaniel Popper reports, comes LPL Financial, which has quickly become the largest nationâs fourth-largest broker, just behind traditional Wall Street powers like Merrill Lynch and Morgan Stanley. LPLâs lower-cost model uses brokers that are âessentially contractorsâ, and theyâve targeted rural America. Theyâve also been hit with more than their share of penalties âfor selling complex investments to unsophisticated investors, for speculative trading in customer accounts, and, in a few cases, for outright stealing from clients.â
Unlike its competitors, the company doesnât have its own investment products. (JP MorganÂ has been accused of favoring Â its own financial products, but itâs also a classic stockbroker conflict.)
Then thereâs 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. âSimply 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 he writes. Howard Lindzon, on the other hand, argues stock-picking is ok — just make sure itâs a hobby and that you donât 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 Olenâs: almost every facet of the personal finance industry has lead us astray, from professional advisers to the traditionalÂ 60/40 portfolio. Hereâs 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 Russianâs 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.