I've written about the dangers of relying on stockbrokers before.
You see, most stockbrokers aren't traders, and they aren't analysts, but salesmen. They usher clients into financial products with little regard for their individual financial situation or the broader markets.
That doesn't make them bad people. In fact, I have friends who are stockbrokers, and they're nice people.
These friends of mine are trustworthy and try hard to make their clients money. But at the same time, I would never let any of them handle my money, not even a small portion of it.
That's why a new analysis published in yesterday's Wall Street Journal really grabbed my attention…
According to the Journal, some stockbroker misdeeds – including financial crimes and other serious felonies – aren't always disclosed to their brokerage house employers, or to the Financial Industry Regulatory Authority.
What you don't know about your brokerage business could hurt you…
The Truth About the Brokerage Business
The problem with most brokers is they aren't that smart… they just think they are. They think they know the market because "that's their business."
But most brokers really don't know squat. They ask you about your investment objectives and finances and what your hopes and dreams are in order to slot you into one or several of the categories. From there, they come up with an investment program "just for you." Only it's not just for you… it's the same program they shoehorn other clients into because they fit in that box, too.
They may sound like they know what's going on in the market, but that's because they watch CNBC and FOX Business to get their "market color" from the analysts and big money managers who guest on those shows.
If you watch those shows and read the Journal or other financial dailies, I guarantee you'll know more about what's going on than most brokers do.
That's because brokers aren't analyzing investments and the market for you. They're out trying to sell new prospects on becoming clients based on their market knowledge. And those "just-for-you" investments are designed by the analysts and "portfolio managers" the big brokerage houses employ to structure programs that are just specific enough to meet clients' expectations and give the illusion of personal service.
You're a cog in a great big machine at great big brokerages. Your broker is a tool, and not the good kind.
Brokers are a sad lot. They don't know what they don't know, but tell you what you should do with your money. It's scary.
But that's not the half of it.
These Bad Apples Can Be Rotten to the Core
What's even scarier is that too many brokers are bad apples with suspect pasts.
And that brings us to what The Wall Street Journal revealed this week.
The Journal analyzed 500,000 brokers in 21 states (there are 635,000 registered brokers spread among 4,000 brokerage firms in the United States) and found that more than 1,600 working brokers had failed to disclose important facts about their financial condition and problematic background histories (including serious regulatory violations).
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.