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Broker Review: BCG Wealth Group (Avoid!)
BCG Wealth Group was established with the goal to deliver absolute and consistent returns to the investors, with the aim of preserving the purchasing power of the traders when it comes to global asset classes. BCG Wealth Group primarily deals with cryptocurrencies and helps to deliver a wealth management portfolio to the institutional investors. Their global wealth theories and strategies are adopted widely by fund managers, pension funds, high net worth individuals as well as family offices. Moreover, they also collaborate with skilled and highly trained fund managers with extensive experience to design a portfolio model for investors. Their postal address is 86-90 Paul Street, London EC2A 4NE. They also have a telephone line as well as a fully functional website. BCG Wealth Group also has an annual global report. Most recently they have analyzed the year 2020 in terms of investment and the world market.
Electronic Trading (platform)
At BCG Wealth Group, they have a team of experienced professionals who have worked with the top interdealer brokers and market makers. They are managing the electronic desk at BCG Wealth Group. They are quite technologically advanced and their trading is quite efficient and robust. Moreover, they also provide the traders with customized pricing options for assets and also provide liquidity information. This electronic trading division is headed by Tim Rogers who has 20 years of financial market experience with a degree in finance and economics. Rogers also has work experience from Lehman brothers as well as from the U.S Equity Trading desk. This sounds quite promising for the new traders to be able to learn from such a figure and to have their trades overlooked by a professional trader.
BCG Wealth Group has a multi asset portfolio the traders can take full advantage of for their own investment purposes. It is able to provide them a choice for extensive diversification in the global markets, with greater returns with their highly structured portfolios. Moreover, there is also the possibility to choose your portfolio according to your level of risk tolerance. It matters whether you are young, risk-taker or if you are at the age to retire soon and want to have a robust financial plan to provide you with a steady flow of income in the coming years. As such, there are many different options for trading that are workable for different types of individuals.
This is a decentralized storage network which is able to turn the cloud storage in algorithm market. The market being run on block chain technology has a protocol token, which is known as the filecoins. These are the coins which the miners may earn when they provide the storage options to the customers. The clients may also spend these filecoins to hire the miners for the purpose of storage as well as for the distribution of the data.
This is yet another secure blockchain middleware which has the purpose of connecting the smart contracts on the block chain technology by providing access to the important off-chain resources like the Web API’s, data feeds as well as the conventional bank account payments. This system revolves around the LINK token and the Link network.
The Ripple Transaction Protocol is a real time settlement system which is designed for the use of remittance, gross settlement as well as for currency exchange. It is used for replacing the age old system of swift money transfers. This system is quite beneficial for since it is fast and efficient. Moreover it uses the latest technology which is similar to Bitcoin.
This is also available at BCG Wealth Group and is a worldwide payment system. It is the world’s first decentralized digital currency being used and it works without having any single administrator or a central bank. It provides peer to peer transactions that can be easily done between users and without requiring any intermediary.
The BCG Wealth Group have strongly mentioned on their website that they are a strictly an asset management company who deal with the investment in cryptocurrencies. And this requires a high level of risk. They have clearly mentioned on their web page that the investors may lose some, or even all of their capital which they invest in cryptocurrency. As such it is not recommended to invest or to trade with an amount of funds which the trader cannot afford to lose. They have also mentioned that the traders must consider very carefully their own investment objectives, their level of experience and also what their risk tolerance level is, as the past performance does not necessarily affect the future performance and they do not have any liability to any entity or a person for any loss they suffer from the trade.
BCG Wealth Group does mention their contact details on their website, where there is a full address given for their London office as well as their Denmark office. They have also mentioned their e-mail address as well as their contact number for the users if they have any queries.
Training material /Information
There is no training material or information available on their website from where a user may learn from. There are no articles, publications or any other material which a new trader can use to get educated on trading strategies.
There is no mention of any particular customer support options. All they have done is mentioned their address and their phone number along with their e-mail address.
The BCG Wealth Group is a dicey and unsafe platform that we here at Binary Today, do not recommend. There is however no information whether it is regulated by any authority and neither is there sufficient information about the company or customer support options. There are also quite a few negative reviews about this company on the internet and as such, whoever wants to trade with this company has to be very careful and they must do their checks before investing with them.
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About the Author
John Kane I am a full time binary options trader. I was able to leave my job in the last 5 years and dedicate myself to trading fully. I never thought my hobby and passion would make a living for me but I am grateful every day that it has. My main goal now is to communicate with the binary trading community, contribute to different websites and learn from other traders.
Disclaimer: Binary Today would like to remind you that the content contained in this website is not necessarily real-time nor accurate. Past performance does not guarantee future performance, the above is not indicative and is purely for educational purposes only. Relying on the above for investment, trading or betting in binary options or Forex is not advised unless done so with virtual money only.
Binary Today or anyone involved with Binary Today will not accept any liability for loss or damage as a result of reliance on the information including reviews, recommendations, charts, software, income reports and signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Global Wealth 2020: Navigating the New Client Landscape
The growth of global private wealth hit a speed bump in 2020, especially in the developed markets, with all regions other than Japan experiencing a slowdown relative to the previous year. This development, combined with the ongoing decline of revenue and profit margins—all amid shifting client needs in both traditional and nontraditional segments—is forcing wealth managers to reevaluate their strategies.
Global Wealth 2020
- Navigating the New Client Landscape
- Three Areas for Action by Wealth Managers
- New Strategies for Nontraditional Client Segments
This year’s Global Wealth report includes two traditional features—the global market-sizing review and the wealth-manager benchmarking study—as well as a special examination of shifting client needs. The market-sizing chapter outlines the evolution of private wealth from both a global and regional perspective, including viewpoints on different client segments and offshore private banking. The benchmarking analysis is from a survey of more than 130 wealth managers and involves more than 1,000 data points related to growth, financial performance, operating models, sales excellence, employee efficiency, client segments, products, and trends in different markets and client domiciles.
We focused our benchmarking study this year on three trends that are altering the face of wealth management worldwide: tightening regulation, accelerating digital innovation, and shifting needs in traditional client segments. These trends have already had an impact on wealth managers’ costs and profitability as banks scurry to implement new compliance measures, update their IT systems, and train their sales forces. Yet the inherent revenue potential is still largely untapped, signaling “areas for action” for agile wealth managers.
In our discussion of shifting client needs, we particularly look at how demographic and socioeconomic trends are setting the stage for the rise of nontraditional client segments—currently underserved or rising in importance—that do not necessarily fit the standard, net-worth-based service approach. Two such segments offering significant growth opportunities are female investors and so-called millennials (people born between 1980 and 2000). With investing profiles that often differ from those of others with similar levels of net worth, these two groups require a different mode of engagement that can address the mismatch between what they are seeking and what wealth managers are currently offering. A survey of more than 500 wealth-management clients led to some eye-opening findings.
In preparing this report, we used traditional segment nomenclature familiar to most wealth management institutions, dividing the client base into categories on the basis of private wealth holdings, as follows:
- Ultra-high net worth (UHNW): more than $100 million
- Upper high net worth (upper HNW): between $20 million and $100 million
- Lower high net worth (lower HNW): between $1 million and $20 million
- Affluent: between $250,000 and $1 million
Moreover, in order to clearly gauge the evolution of private wealth in nearly 100 markets worldwide (representing more than 99 percent of global GDP in 2020), we updated our market-sizing methodology this year to reflect both the availability of enhanced data sources and new research on the topic of private financial wealth. Refinements were made in such areas as how private wealth is defined, the comprehensiveness of data on wealth distribution among client segments and regions, and how future global wealth is estimated. All growth rates are nominal with fixed exchange rates.
As always, our goal in Navigating the New Client Landscape: Global Wealth 2020, which is The Boston Consulting Group’s sixteenth annual report on the global wealth-management industry, is to present a clear and complete portrait of the business, as well as to offer thought-provoking analysis of issues that will affect all types of players as they pursue their growth and profitability ambitions in the years to come. We provide a holistic view of the market, emphasizing how the entire wealth-management ecosystem interacts and where the best opportunities for wealth managers can be found.
Global Wealth Markets: A Slowdown in Growth
Global private financial wealth grew by 5.2% in 2020 to $168 trillion. 1 (See Exhibit 1.) The rise was less than in the previous year, when global wealth rose by more than 7%. All regions except Japan, which was boosted by supportive monetary policies, experienced slower growth than in 2020, ultimately resulting from both lower market performance and declining global GDP growth.
Unlike in recent years, the bulk of global wealth growth in 2020 was driven more by the creation of new wealth (such as rising household income) than by the performance of existing assets, as many equity and bond markets stayed fairly flat or even fell.
Significant slowdowns were seen in North America (2% in 2020 versus 6% in 2020), Eastern Europe (6% versus 11%), and Western Europe (4% versus 6%), with North America posting the lowest growth rate of any region. In Western Europe, uncertainty about the future of the European Union and continued low commodity prices weighed on equity and bond markets despite a generally promising start to the year. Some developing regions experienced significant slowdowns because of political unrest, international sanctions, and general economic tension. As in recent years, the highest growth in private wealth was seen in the Asia-Pacific region (13% in 2020, versus 14% in 2020), while the lowest growth in the developing markets occurred in the Middle East and Africa, or MEA (3% in 2020, versus 4% in 2020), where low commodity prices and political instability led to lower equity and bond markets.
If financial markets recover over the next five years, the rise of private wealth globally will return to being driven in roughly equal shares by the performance of existing assets and the creation of new wealth. (See Exhibit 2.) From a regional perspective, however, the principal driver of wealth growth will vary, with returns to existing assets dominating in North America and Japan, and newly created wealth generally playing a larger role in developing markets. As in 2020, the highest growth rates will likely be seen in Asia-Pacific, which combined with Japan is projected to overtake North America in total private wealth soon after 2020. The Asia-Pacific region is also expected to surpass Western Europe as the second-wealthiest region in 2020. Overall, private wealth globally is projected to rise at a compound annual rate of 6% over the next five years to reach $224 trillion in 2020.
In terms of wealth distribution, the upper-HNW segment saw the strongest growth in wealth in 2020 (7%), particularly in Asia-Pacific (21%). The number of millionaire households grew by 6% globally in 2020, with their share of global wealth reaching 47%—a share projected to reach 52% in 2020. (See Exhibit 3.) Several countries, particularly China and India, saw large increases in the number of millionaire households in 2020, although there were no significant shifts in millionaire density compared with 2020, with Liechtenstein and Switzerland maintaining the highest concentrations.
The vast majority of private financial wealth in 2020 was split evenly between cash and deposits on one side and equities on the other, which combined made up more than 80% of wealth assets globally. (See Exhibit 4.) Allocations varied by region, with Western Europe generally aligned with the global average, North America tilted more toward equities, and Japan dominated by cash and deposits. The picture was more uniform in developing regions, with cash and deposits typically being the most popular asset class.
Owing to generally disappointing financial-market performance, wealth held in equities grew at lower rates in 2020 than in recent years. If financial markets recover, assets will be expected to increasingly tilt toward equities over the next five years rather than cash and deposits or bonds, which in a low-interest-rate environment will continue to be less-attractive asset classes.
Highlights by Region
North America. 2 Private wealth in North America grew by less than 2% to $60 trillion in 2020, compared with a 6% rise a year earlier. The Dow and the S&P 500 closed the year with negative returns for the first time since 2008, and the meager wealth growth that did occur in 2020 stemmed mainly from rising household income.
The November 2020 U.S. election is still a wild card with regard to its effect on financial markets. With a respectable stock market recovery, however, North American private wealth is expected to grow by nearly 5% per year to reach $76 trillion in 2020. The U.S. will remain the world’s wealthiest country, although North America is expected to be surpassed by Asia-Pacific (including Japan) soon after 2020.
The lower-HNW segment experienced the slowest wealth growth in North America in 2020, while the upper-HNW segment posted the strongest expansion, although still at a modest rate (2%). Millionaire households continued to control the majority of private wealth in North America (63%), the highest share of all regions. With a higher allocation to equities, wealth held by these households is expected to grow at a significantly higher rate than that of nonmillionaire households through 2020. In general, 62% of North American private wealth was held in equities in 2020, the highest share of all regions.
Western Europe. 3 Western Europe posted private wealth growth of 4% in 2020, down from 6% a year earlier, despite a policy of quantitative easing by the European Central Bank.
The growth that was achieved was driven primarily by the performance of existing assets, albeit with some differences in equity market performance among countries. France and Italy, for example, enjoyed positive stock market performance, while U.K. equities were in negative territory, partly driven by a drop in the commodity sector. Regional wealth growth is expected to continue at rates similar to those in recent years, although this expansion could be held back by the low-interest-rate environment and the potential exit of Great Britain from the European Union. Further pressure could come from economic slowdowns in countries outside the region—such as China—in which Western European nations have high investment stakes.
In terms of wealth segments, the highest growth in Western Europe was registered by the lower-HNW segment (9%), with wealth held by the UHNW segment growing by 5%. There was variation among countries depending on specific stock-market results.
Equities stayed just ahead of cash and deposits as the most popular asset class in Western Europe. Over the next five years, the share of Western European wealth held in equities is expected to increase.
Eastern Europe. 4 Private wealth in Eastern Europe grew by more than 6% to nearly $4 trillion in 2020, although significantly lower than the 11% growth posted in 2020. The expansion that did take place was driven at a regional level by rising household income, given that both equities and bonds had negative returns in some markets. Russia’s markedly slower growth in 2020 (8%, compared with 19% in 2020) was partly the result of lower commodity prices, international sanctions, and the conflict with Ukraine. On the positive side, the Russian central bank’s efforts to ease monetary policy and reduce interest rates allowed private wealth in the country to grow more substantially than in other regional markets.
Poland and the Czech Republic, the region’s two wealthiest countries after Russia, witnessed reasonable growth, while Ukrainian wealth declined by 6% largely as a result of political instability. With markets predicted to recover and commodity prices rising again, Eastern European wealth is expected to expand more strongly over the next five years, driven mainly by Russian wealth.
In terms of wealth distribution, the UHNW segment saw the most robust growth in Eastern Europe in 2020, with upper-HNW households also showing strength. Wealth held by both of these segments is expected to grow more rapidly through 2020—12% for the UHNW segment and 9% for upper-HNW households. The share of wealth held by millionaire households is expected to increase from 55% to 62% in 2020.
In terms of asset allocation, the highest share of Eastern European wealth remained invested in cash and deposits in 2020. The share of equities and bonds is expected to increase through 2020 at the expense of cash and deposits.
Asia-Pacific. 5 Asia-Pacific was the only region to post double-digit growth in 2020, as private wealth rose by 13% to $37 trillion. The expansion was driven more by rising household income than by asset performance, as the entire region experienced high volatility in financial markets. China remained the principal growth motor in the region. Asia-Pacific wealth growth is expected to continue through 2020, although at a less-rapid pace than in 2020, owing to probable ongoing market volatility across the region and a lower level of GDP growth in China. Overall, Asia-Pacific will continue to gain share in total global wealth through 2020 (from 22% in 2020 to an estimated 27% in 2020), driven mostly by the creation of new wealth as opposed to the performance of existing assets.
The upper-HNW segment posted the strongest growth in 2020, although this expansion is expected to lose some momentum in the run-up to 2020. The UHNW segment also achieved robust wealth growth in 2020 (15%), and is expected to grow at even higher annual rates until 2020 (16%), making it the fastest-growing segment in the region. As in all other regions, wealth held by millionaire households in Asia-Pacific is expected to grow faster than that held by nonmillionaire households, raising the share of wealth held by the former to 50% in 2020.
The highest share of Asia-Pacific wealth remained invested in cash and deposits, although the trend was moving somewhat toward equities. Bonds lost ground in 2020, a downward trajectory that is expected to continue through 2020.
Japan. Private wealth in Japan grew by 4% to $14 trillion in 2020, a higher rate than the 3% posted in 2020, making Japan the only region whose wealth growth surpassed that of the previous year. The growth in wealth in Japan was generated more from the performance of existing assets than from new wealth creation, as equities performed fairly well. In addition, corporate profits were strong and the central bank injected more money into the market. Wealth growth is expected to moderate through 2020 as capital investment and consumer spending remain sluggish, the low-interest-rate environment persists, and exports are dampened by decelerating growth in China.
The upper-HNW segment posted double-digit wealth growth in 2020 (13%), although this expansion is expected to slow through 2020 (to 4% annually) with its overall share of Japanese wealth remaining modest (2%). The lower-HNW segment should continue to hold nearly one-fifth of all Japanese wealth. Wealth held by millionaire households is expected to grow faster than that held by nonmillionaire households, but the difference in their growth rates will be modest, with Japan continuing to have a low share of wealth held by millionaire households (23%) in 2020.
In terms of asset allocation—and in contrast to other developed regions where equities are generally the preferred asset class—the highest share of Japanese wealth was held in cash and deposits in 2020. Wealth held in equities grew the most robustly, and is expected to continue to grow at a strong pace. Bonds will remain a less-attractive asset class given the low-interest-rate climate.
Latin America. 6 Private wealth in Latin America grew by 7% to $5 trillion in 2020, a somewhat lower rate than the nearly 8% gain registered in 2020. Wealth expansion was reined in by poor equity-market performance in the two largest economies, Brazil and Mexico, which hold more than half the region’s wealth. Having suffered from the fading commodity- and consumption-driven boom, these and other economies in the region have found themselves at a crossroads. Future economic growth, and with it future wealth growth, will depend on the choices made in the next electoral cycles.
There were no significant shifts of Latin American wealth across segments in 2020. Wealth held by the UHNW as well as by the upper- and lower-HNW segments is expected to grow by 9% to 11% per year through 2020 owing to the anticipated equity-market recovery. The higher expected growth of wealth held by millionaire households (compared with that held by nonmillionaire households) will increase the former’s share of regional wealth to a projected 49% in 2020.
More than half of Latin American wealth remained invested in cash and deposits in 2020. In Brazil, however, the largest share of wealth remained in bonds. The share of wealth held in equities is expected to increase in the region through 2020.
Middle East and Africa. 7 The level of private wealth in MEA grew by less than 3% in 2020 to $8 trillion, which was lower than the 4% rise registered a year earlier and the second-lowest rate of any region globally. The slow growth was largely the result of negative equity-market performance in two key economies, Saudi Arabia and Nigeria, which account for roughly a third of the region’s wealth. The growth that did occur reflected rising household income. Nevertheless, if commodity prices recover and political tensions ease, stock markets can be expected to improve through 2020, fueling private wealth growth.
Wealth distribution was unchanged in MEA in 2020, with no significant shifts among segments. Millionaire households, already holding more than half of all regional wealth in 2020, are expected to see their share grow over the next five years. Roughly half of MEA wealth remained invested in cash and deposits in 2020, but the share of equity-based wealth is expected to rise.
The Offshore Perspective
Private wealth booked in offshore centers grew by about 3% in 2020 to almost $10 trillion. A key factor was the strong repatriation of offshore assets by investors in developed markets. Indeed, offshore wealth held by investors in North America, Western Europe, and Japan declined by 3% in 2020.
On a regional basis, the largest sources of offshore wealth were Western Europe (mainly the U.K., Germany, and France), Asia-Pacific (mainly China, Taiwan, Hong Kong, and Indonesia), and MEA (mainly Saudi Arabia, Nigeria, and the United Arab Emirates). (See Exhibit 5.) The top three source countries were China, the U.S., and the U.K., although their offshore shares relative to total wealth varied significantly (1% for the U.S. versus 6% for the U.K.).
Overall, the shift from developed regions (the “old” world) to developing regions (the “new” world) as the primary source of offshore wealth has become more pronounced. Today, 65% of offshore wealth originates from the new world, compared with 57% five years ago. In addition, the share of wealth held offshore varies significantly among regions, with MEA and Latin America being the front-runners, both with roughly 25% of total private wealth held offshore. In these regions, economic and political tensions (as well as access to financial products not available onshore) have continued to contribute to the flow of wealth offshore as investors actively search for the most attractive locations in which to domicile their assets.
The annual growth of offshore wealth globally is expected to pick up again through 2020, although at a lower rate than onshore wealth (5% versus 6%). One factor is that although regulatory measures aimed at fighting tax evasion will continue to persuade some old-world investors to repatriate their wealth, regulation also stabilizes the market and provides new opportunities to move fully taxed wealth offshore in search of better service quality, product diversity, and economic stability. Offshore wealth originating in the old world is expected to show positive growth again (2% annually through 2020, compared with 6% sourced from the new world). Nonetheless, the overall share of total global wealth booked offshore is projected to decrease from 6% in 2020 to an estimated 5% in 2020.
Among offshore centers, Hong Kong and Singapore saw the strongest growth (about 10%) in 2020. Switzerland remained the largest destination for offshore wealth, holding nearly one-quarter of all offshore assets globally, followed by the U.K. and the Caribbean, including Panama.
The outlook for offshore centers located in the new world remains positive given their proximity to high-growth regions. Offshore wealth booked in Hong Kong and Singapore is projected to grow at roughly 10% annually through 2020, increasing their combined share of the world’s offshore assets from roughly 18% in 2020 to 23% in 2020. Despite the high projected growth of most new-world offshore centers, Switzerland is expected to remain the largest single center through 2020 owing to its high service quality, diverse product offerings, political stability, safe-haven currency, and attractive location in the center of Europe.
The Shifting Competitive Climate Among Offshore Players. While the reasons that many investors send assets offshore remain more or less the same, the provider side is changing significantly. Indeed, many banks with offshore operations are engaged in rigorous portfolio analyses. Their objectives are essentially threefold: reducing regulatory risks, achieving scale and growth, and focusing on the core business.
- Reducing Regulatory Risks. The rapidly rising cost of ensuring regulatory compliance, especially with regard to anti-money-laundering and tax compliance rules, is making it very difficult for offshore banks to remain active in smaller markets. Some banks have shed assets originating from clients in certain domiciles in order to reduce not only complexity along the value chain but also operational and reputational risks.
- Achieving Scale and Growth. Amid the rising cost of doing business, reflecting not only regulatory measures but also the ongoing need for IT investment, banks that lack scale and the resources to expand will continue to face pressure to consolidate. Many have been active on the M&A front. In addition, with regulatory frameworks such as the so-called European passport (which grants a bank licensed in any EU member state the right to operate freely across the European Economic Area), a number of players have begun to regionalize their wealth-management operations, effectively blurring the lines between onshore and offshore bookings. Domiciles such as the U.K. and Luxembourg have attracted a number of Chinese, Russian, Middle Eastern, and Swiss wealth-management institutions that have ambitions to serve the entire European market.
- Focusing on the Core Business. The complexity of managing too many domiciles has prompted some larger offshore banks to retrench and concentrate their businesses in core markets, exiting regional or more far-flung areas. This trend, in addition to the search for scale among smaller players, has contributed to consolidation across the offshore industry. And with our offshore-focused benchmarking participants in 2020 each still serving an average of 108 client domiciles, the peak of consolidation has likely not been reached. M&A activity may also give nontraditional players an opportunity to enter the market, as some retail and investment banks have already done.
Evolving Front-Office Models. With the emphasis shifting to core domiciles, front-office structures are becoming more team-based and market-focused. Given increased service complexity and more onerous compliance requirements, relationship managers (RMs) are concentrating on fewer markets. For banks that have made this transition in their operating models, the number of markets served per RM has decreased from an average of 15 to 20 to an average of 3 to 5 in any specific region.
Client Interaction with RMs. The level of interaction between offshore clients and their RMs has increased. This trend is due to both difficult market conditions (such as low interest rates and high stock-market volatility) and the amount of client information banks must gather to satisfy new transparency obligations. Although digital technology can help make processes smoother, banks need to obtain detailed histories of clients and their sources of wealth and fully adhere to all relevant regulatory and compliance standards. Such requirements are making offshore banking more resource-intensive, leading to front-office costs per client that are close to those of onshore operations (21 basis points on client assets and liabilities). Nonetheless, more frequent interaction should also provide opportunities for wealth managers to serve clients better. The value propositions of leading offshore bankers are putting more emphasis on service models that are highly customized by market, region, and segment, since being offshore is no longer an attractive selling proposition in and of itself.
Three Areas for Action by Wealth Managers
For 14 years, BCG has conducted a proprietary benchmarking survey of wealth management providers from all over the world, running the spectrum from small boutiques to the world’s largest wealth managers—and covering multiple business models, from onshore to offshore and from banking to brokerage. A key finding in this year’s benchmarking is that average revenue and profit margins declined for wealth managers from 2020 to 2020. (See Exhibit 1.)
Global Wealth 2020
- Navigating the New Client Landscape
- Three Areas for Action by Wealth Managers
- New Strategies for Nontraditional Client Segments
This development underlines the need for new strategies and approaches. Three major trends have altered—and will continue to alter—the face of wealth management: tightening regulation, accelerating digital innovation, and shifting needs in traditional wealth-based client segments.
Regulators worldwide remain determined to increase transparency in the products, prices, and processes of wealth managers. Their overall goal is to eliminate conflicts of interest, help investors understand increasingly complex financial products, and ultimately strengthen investor protection. For example, more and more countries are prohibiting inducement fees, through such means as the Markets in Financial Instruments Directive II (MiFID II) in Europe, the Retail Distribution Review (RDR) in the U.K., the Future of Financial Advice (FOFA) in Australia, and the U.S. Department of Labor’s so-called fiduciary rule. This last rule, which will take full effect over the next 12 to 18 months, requires financial advisors handling retirement accounts to put the best interests of their clients above their own profit goals. It remains to be seen whether the commission-based models of many broker-dealers in the U.S. market can coexist with this new fiduciary-duty rule.
Such regulatory steps will have a significant impact on wealth managers’ revenue potential in several ways: by putting pressure on fees and charges (through increased transparency); by limiting the products that can be offered on an execution-only basis without advice and proof of suitability (or of acting in the client’s best interest); and by restricting (or eliminating) inducement payments as a source of revenue. In 2020, our global wealth-manager survey respondents in regions where regulation is not yet in place derived 21% of their revenues from inducement fees and commissions (down from 24% in 2020), indicating a high level of dependence. In regions where regulation is about to be implemented, the share has already decreased to an average of 9%.
In addition to reducing revenues, regulatory measures will also increase costs for wealth managers as new systems, processes, and controls are put in place to ensure compliance, and as liability risk increases—with potentially severe financial penalties and reputational damage resulting from noncompliance. For our survey participants, legal and compliance costs have increased to 4% of total operating expenses, double the 2% average in 2020. According to Expand Research, a subsidiary of BCG, regulatory spending can represent up to 13% of IT costs, especially for smaller regional players.
Moreover, operational complexity will rise, with advice to clients requiring documentation and proof of suitability (or of acting in the client’s best interest). Costs will also have to be fully disclosed and broken down into categories, with any inducement fees and other potential conflicts of interest revealed. Relationship manager roles will need to continuously adapt to new regimes.
Of course, the new environment has a positive side in that nimble, highly skilled wealth managers can turn the challenge into an opportunity by creating compelling advisory offerings—often leveraging investment specialists—targeted at self-directed clients who wish to participate in their own investment choices. Although the share of client assets under advisement (either centrally or through the RM) increased to 19% in 2020 among our survey respondents, there is still enormous potential in the 46% of self-directed client assets that currently receive no contractually defined advice. For banks, increasing the advisory share is lucrative and carries the potential to raise client satisfaction and loyalty. On average, an advisory mandate delivers returns on assets that are 22 basis points higher than pure execution models, according to our survey.
Of course, the chief opportunity lies in creating clearly defined levels of advisory service that the client is willing to pay for, systematically injecting the bank’s research capabilities into individualized investment recommendations, and providing compelling digital services. Overall, the bank’s sales pitch becomes the following: “We will help you to find the right investments, and you will be able to monitor them continuously and interactively.” Varying levels of advice should be available to all clients regardless of net worth, although standard underlying services and products should be streamlined, using robo-advisors and fixed-fee models for smaller clients and teams of experts for larger, more complex client portfolios. In 2020, 82% of our survey respondents still provided affluent clients with RM-centric service. Nonetheless, this model may not be economically viable once new regulations come fully into force—as evidenced in markets such as the U.K., where smaller clients are increasingly less likely to receive personalized financial advice.
By shifting toward diverse product packages—in particular by moving from execution-only to fee-based advisory services—wealth managers can potentially complement commissions with more predictable revenue streams. We are already observing a shift away from commissions to recurring fees. Among our survey respondents, fee-based revenues represented 43% of total revenues in 2020, compared with 38% in 2020. There is even greater potential in customizing pricing plans on the basis of clients’ product needs and activity levels—as well as on their overall value to the organization.
A successful, systematic advisory process should cover structured client-book planning (weekly and daily coverage) and implement sales targets with clear KPIs linked to incentives. A big element of developing such a process is rigorous RM training. Among our survey respondents, the average cost of training per RM in 2020 was roughly $1,000, a figure that will likely need to increase. Effective RM training can result in a front line that truly understands client goals and risk profiles and is able to deliver holistic advice that goes beyond short- and medium-term investments—which are close to becoming commoditized, partly because of regulatory restrictions—to include broader advice that encompasses lifestyle choices and long-term financial objectives.
Accelerating Digital Innovation
With the rise of financial technology firms and the rapid evolution of smart analytics (or big data), digital technology is changing the rules of the wealth management industry. Most players are committed to making digital transformation a top priority. Fully 97% of our survey respondents said that they planned to invest in digital capabilities, and 64% believe that digital capabilities would be the key to serving the next generation of wealthy clients. Clients themselves have also voiced a need for digital engagement, indicating that it provides a noninvasive and efficient way for them to receive effective service. Nonetheless, many wealth managers are still trying to figure out how to derive value from their investments in digital capabilities.
Indeed, the time for action is ripe. We estimate that the number of asset- and wealth-management-focused financial technology companies has more than doubled, from roughly 315 (with funding of $1.7 billion) in 2020 to about 700 (with funding of $4.9 billion) in 2020. These companies are known primarily for low-cost, algorithm-based asset-allocating platforms (or robo-advisors), but they also offer digital advice, portfolio composition, and execution, as well as customized portfolio optimization and recommendations for high-net-worth (HNW) clients. They tend to specialize in certain steps of the value chain, particularly in finding the best investment solutions for clients and interacting with them. By contrast, most traditional wealth managers cover the entire value chain and struggle with digital capabilities.
Big data is also playing a key role in revolutionizing the industry. In the past, most wealth managers were limited to analytics for financial reporting and control. Today, big data has evolved to the point where enormous amounts of unstructured internal and external data can be processed within very short time periods, greatly enhancing the ability to predict clients’ product preferences, accurately gauge the regulatory compliance level of both clients and RMs, and prevent fraud, among other uses. Wealth managers that seamlessly inject analytics-based insight into client interactions will be able to increase their share of wallet through highly tailored services—taking a page from luxury-goods firms and other consumer-centric sectors and possibly changing the way investment solutions are identified and proposed.
In our view, wealth managers need an entirely new perspective on digital capabilities if they hope to tap the full potential and unlock multiple opportunities across their business models, particularly in the areas of revenue enhancement, cost optimization, and operational effectiveness.
Revenue Enhancement. Smart analytics allow for precise customer targeting through both descriptive and predictive analysis. For example, a trading-oriented client with a high risk tolerance will have markedly different research requirements, price sensitivities, and investment horizons than a client who delegates investment decisions. Wealth managers now have the opportunity to use behavioral, demographic, and lifestyle data to think ahead of the client in determining the next logical investment.
Providing clients with quality advice and products at the right time through the best channel—increasingly a digital channel—will dramatically improve the client experience, which will ultimately lead to increased client trust and loyalty and a higher level of activity and interaction. Many wealth managers still dramatically lag behind in providing the digital services that clients are accustomed to receiving from retail banks and consumer-goods companies. Current digital offerings are not compelling enough to engage the client, and are not built around the few key client journeys that truly make a difference. Ultimately, the combination of better digital engagement and smart analytics has the potential to lift revenues significantly.
Cost Optimization. Middle- and back-office costs accounted for 53% of total costs for our wealth-manager survey respondents. Investments in digital technology are a significant part of these costs. According to Expand Research, client and advisor technology now makes up 29% of total IT spending, on average, up from 23% in 2020 for a representative sample of wealth managers. This trend is driven primarily by the need to establish a sophisticated digital foundation and by the potential that wealth managers see in pursuing digital capabilities in the long run. Many IT organizations have focused on providing the front office with better self-directed tools in order to drive productivity and improve the client experience through a more effective digital platform.
From a long-term perspective, however, digital technology gives wealth managers the opportunity to serve affluent clients efficiently through a lower-cost, commoditized approach. Furthermore, wealth managers can leverage technology to reduce costs in portfolio management, research and product development, operations, risk compliance, and other support functions—while also leveraging sophisticated communication and advice tools that enhance the offering for HNW and ultra-high-net-worth (UHNW) individuals. Financial technology companies are leading the way with innovative ideas in this space.
Operational Effectiveness. A properly implemented digital initiative provides a huge opportunity to standardize and simplify processes, identify areas to insource and outsource, and work jointly with other players to create efficiency gains, especially in the middle and back offices. Wealth managers must therefore understand that digital technology is not just another silo next to their traditional business model but rather a change in their DNA, requiring systematic process redesign and integration with legacy elements. This realization can lay the foundation for focusing on the links in the value chain where wealth managers can truly differentiate themselves.
It is important to note that a comprehensive digital initiative cannot be based on incremental improvements, as has often been the case in the past, with multiyear projects driven by the IT department—nor can it be based on building a digital incubator lab that operates in an ivory tower with no connections to the day-to-day business. Focused prototypes must quickly be produced, tested, and improved, and innovations should be managed as a portfolio, not unlike a venture capital fund. Partnering with or even acquiring financial technology firms is an option for obtaining relevant capabilities at the speed required in today’s rapidly changing environment.
Of course, increasing digital interaction with clients poses its own set of threats in the form of cyber attacks and data leakage, and any incidents involving HNW and UHNW clients can potentially bring about reputational damage. Wealth managers must therefore ensure that proper infrastructure and security protocols are continuously upgraded to reflect the latest developments and threat patterns.
In order to be truly digitally transformed, wealth managers will need to redesign their entire business model and organization. The sales force must be brought on board, and great care must be taken to ensure that digital innovations and channels not only avoid putting pressure on margins but actually strengthen them. Only those players agile enough to keep up with the nimblest digital disruptors will prevail.
Shifting Needs in Traditional Client Segments
Upper-HNW households (with wealth of more than $20 million) and UHNW households (with wealth of more than $100 million) are the fastest-growing client segments, holding a combined 18% of global wealth in 2020. Nearly all of our wealth-manager survey respondents claimed to serve the over–$20 million segment, with 67% saying they wished to increase their share. Nonetheless, the diversity and complexity of the households that make up this category, as well as their investment needs, are evolving so rapidly that it is worth reassessing these segments.
Given the challenges of managing large investments across multiple jurisdictions, it is not surprising that very wealthy people typically need many banking relationships (roughly three to five) in order to find all of the products and services they need—including high-level portfolio management, estate planning, and tax advice covering multiple asset classes and countries. Individuals at this wealth level also typically seek diversity. In our survey of wealth management clients (our “client needs” survey, which included interviews), more than 80% of the over–$20 million segment expressed a willingness to invest in both alternative products and emerging markets. Socially conscious products were not seen as critical offerings, nor were social platforms that involve other investors. Crowd-funding platforms were cited as interesting by 30% of respondents.
People with more than $20 million in wealth tend to be knowledgeable about investment strategies as well as more self-directed—although they are also typically interested in close interaction with the professionals who manage their money. According to our client-needs survey, they rely first on themselves for investment decisions and on their advisors second, although they are especially concerned with feeling comfortable that their assets are being looked after carefully and securely. Most are interested in long-term wealth preservation as well as short-term wealth growth. Excellent investment performance as well as price transparency are, of course, key considerations in choosing a wealth manager.
More than three-fourths (79%) of respondents in our wealth-manager survey serve their clients at this level with specialized teams that are fully dedicated to managing their complex needs. Nonetheless, 15% of wealth managers also said that they had RMs and teams that served all segments—which can increase the risk of overserving smaller clients at the expense of larger ones. Players that offer truly customized attention to the over–$20 million segment will also benefit from client referrals among this highly exclusive network of people. According to our client-needs survey, the vast majority of such clients leverage referrals from other investors.
Another important segment is affluent clients, with between $250,000 and $1 million in financial wealth. These clients make up the heavy middle part of the wealth pyramid, holding 30% of global wealth and representing 6% of households. We see this group as a type of emerging segment, particularly since it has not historically been a target for most wealth managers and is losing even more appeal in a world of regulated advice. While all of the respondents in our wealth-manager survey said that they served the affluent segment, 58% of wealth managers said they planned to decrease their share over the coming three years. In our view, this may be a missed opportunity, as gaining share among affluent clients is a relatively direct way to generate revenues through volume, using a standardized service model that is appropriate to clients whose investment needs are typically straightforward. In addition, clients that move from the affluent segment into the HNW segment will have learned the benefits of professional wealth-management services early on.
Our client-needs survey showed that affluent investors are very price sensitive, although many do not understand their actual fee level. For 71% of our respondents, fee levels were a top-three criterion in choosing a wealth manager, which is particularly relevant in the current environment of increasing fee transparency. To minimize fees, most affluent clients maintain a low number of banking relationships. A wide variety of products is typically less important to them than price considerations.
Moreover, although affluent clients are relatively small investors, they tend to be engaged. Half of our survey respondents said they had an appetite for actively trying to enhance their returns—preferring to base their investments on their own opinions—and they typically use online sources to gather investment information and advice. Wealth managers therefore have an opportunity to convince affluent clients of the value that they can provide.
Digital capabilities are important for this segment, as affluent clients are accustomed to using a range of digital channels with their retail banks. They expect an intuitive digital process for advisory services from their wealth managers. One-third of our client-needs survey respondents cited digital sophistication as a top reason for choosing a wealth manager, yet only 7% of our wealth-manager survey respondents said that they had a targeted and individualized digital platform. Next to meeting clients’ demands, technology is also the most cost-efficient and regulation-compliant way to serve affluent clients.
Across all segments, wealth managers must recognize that properly articulated value propositions should take a client-centric perspective and describe specific benefits in terms of service levels, products, and interaction channels—as well as the cost to the client. Skillful execution in this domain will lay the foundation for providing a unique and engaging client experience.
Interactive Brokers Review 2020: Pros, Cons and How It Compares
Interactive Brokers attracts active traders with low per-share pricing, an advanced trading platform, a large selection of tradable securities — including foreign stocks — and ridiculously low margin rates. Its new offering, IBKR Lite, offers commission-free trades of stocks and ETFs.
At NerdWallet, we strive to help you make financial decisions with confidence. To do this, many or all of the products featured here are from our partners. However, this doesn’t influence our evaluations. Our opinions are our own.
The bottom line: Active and casual traders alike will benefit from Interactive Brokers’ advanced execution, strong trading platforms and rock-bottom pricing.
Best Broker for Low-Cost Investing, Best Broker for Stock Trading Platform and Research
on Interactive Brokers’s website
Interactive Brokers IBKR Lite
on Interactive Brokers’s website
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Pros & Cons
Large investment selection.
Strong research and tools.
Over 4,300 no-transaction-fee mutual funds.
NerdWallet users who sign up for IBKR Pro get a 0.25 percentage point discount on margin rates.
Website is difficult to navigate.
Inactivity fees on IBKR Pro.
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Interactive Brokers has long been a popular broker for advanced traders, but in 2020 the company launched a second tier of service — IBKR Lite — for more casual investors.
With IBKR Lite, you get unlimited free trades of stocks and exchange-traded funds that are listed on U.S. exchanges. If you’re interested in trading other investments, including options, futures, mutual funds, fixed income and more, you can do that on 125 markets in 31 countries with a Lite account, but the trading costs will be the same as what IBKR Pro investors pay.
As the name implies, IBKR Pro is geared toward advanced traders. If that’s you, you’ll probably like the broker’s per-share pricing of $0.005 per share (the minimum is $1), advanced trading platform, unmatched range of tradable securities — including foreign stocks — and ridiculously low margin rates.
Both tiers of service have a $0 account minimum and offer fractional shares of stock. IBKR Lite has no account maintenance or inactivity fees. IBKR Pro charges an inactivity fee, though it’s possible to skirt that if you trade relatively frequently.
Interactive Brokers is best for:
Casual and advanced traders.
Research and data.
Interactive Brokers at a glance
Stock trading costs
• IBKR Lite: Unlimited free trades on U.S.-listed stocks and ETFs.
• IBKR Pro: $0.005 per share; minimum $1 and maximum 1% of trade value; volume discount available.
IBKR Lite and IBKR Pro: No base commission; 65 cents per contract with $1 minimum. Volume discount available.
Account fees (annual, transfer, closing, inactivity)
• IBKR Pro: $10/month commission minimum for accounts with $100,000 or less, and a $20/month commission minimum for accounts with $2,000 or less.
Number of commission-free ETFs
• IBKR Lite: Unlimited commission-free trades on all available ETFs.
• IBKR Pro: 98 commission-free ETFs.
Number of no-transaction-fee mutual funds
Over 4,300 no-transaction-fee mutual funds.
• Stocks. • Bonds. • Mutual funds. • ETFs. • Options. • Futures. • Forex. • Metals.
IBKR Lite and IBKR Pro customers get access to Client Portal trading platform and powerful Trader Workstation platform.
Advanced features mimic the desktop app.
Research and data
Extensive research offerings, both free and subscription-based.
Customer support options (includes website transparency)
24-hour phone, email and chat support, available six days a week.
NerdWallet users who sign up for IBKR Pro get a 0.25 percentage point discount on margin rates.
$1,000 worth of commission credits for 1 million new customers who participate in IBKR’s simulated sports betting exchange.
Where Interactive Brokers shines
Low commissions: If you’re a casual investor, it’s hard to beat the free trades you’ll enjoy with IBKR Lite. But even advanced traders who opt for IBKR Pro will like the low stock and ETF commission structure at Interactive Brokers, which favors frequent, high-volume traders at just $0.005 per share. There’s a $1 minimum trade commission and a maximum of 1% of the total trade value, and exchange and regulatory fees are included. The broker also offers tiered pricing to lower rates even more: Investors who trade more than 300,000 shares a month can pay $0.002 or less per share, depending on trade volume, although exchange and regulatory fees are extra on this plan. Rates can go even lower for truly high-volume traders.
Options trading , too, is offered at competitive pricing, for both Pro and Lite customers, with a 65 cent charge per contract and no base, plus discounts for larger volumes. The minimum options trade commission is $1 per order.
Margin rates: Margin traders will also benefit from the low rates at Interactive Brokers. For IBKR Pro customers, the maximum margin rate is the benchmark rate plus 1.5% — and NerdWallet users get an extra 0.25 percentage point discount. For IBKR Lite, it’s the benchmark rate plus 2.5%. Those rates apply on balances up to $100,000; the rates drop at higher balances. The broker charges a blended rate based on the size of the margin loan, and has a calculator on its website to help investors quickly do the math based on their balance.
Interactive Brokers also offers an integrated cash management feature, which allows investors to borrow against their accounts with a debit Mastercard, also at low interest rates.
Fractional shares: The ability to purchase a portion of a company’s stock, rather than a full-priced share, makes it easier to invest in companies that have lofty share prices. That, in turn, makes it easier to maintain a diversified portfolio, especially for investors with smaller accounts. For example, rather than paying more than $260 for one share of Apple, you can divvy up that money among different companies.
Trading platform: The casual traders who find IBKR Lite appealing will find the Client Portal platform adequate for their trading needs. But both IBKR Lite and IBKR Pro traders seeking something more powerful can now enjoy access to Interactive Brokers’ Desktop Trader Workstation, which is considered one of the best trading platforms available for advanced traders. (Until recently, only IBKR Pro traders had access to the advanced platform.)
The platform is fast and includes standard features such as real-time monitoring, alerts, watchlists and a customizable account dashboard. An options strategy lab lets you create and submit both simple and complex multileg options orders and compare up to five options strategies at one time.
Other tools include a volatility lab, advanced charting, heat maps of sector and stock symbol performance, paper trading and a mutual fund replicator, which helps users identify ETFs that replicate the performance of a selected mutual fund but offer lower fees. InteractiveBroker’s For You notifications offer customized alerts about events that could affect a trader’s investments.
Worth noting: Another broker we review, Zacks Trade , offers its customers access to white-labeled versions of Trader Workstation. Zacks Trade charges higher trade commissions, but offers clients free calls with support reps, who are licensed brokers. It’s an option worth considering for traders who want the power of Interactive Brokers’ trading platforms alongside a bit more personal support.
Mobile app: The IBKR mobile app, available to both Lite and Pro customers, is Trader Workstation on the go, with advanced trading shortcuts, over 50 data columns, option exercise and spread templates, news, research, charting and scanners. Users can create order presets, which prefill order tickets for fast entry. Presets set up on Trader Workstation are also available from the mobile app.
Research: Interactive Brokers provides access to a huge selection of research providers and news services, many for free, including Fundamentals Explorer, which offers fundamentals data from Thomson Reuters on over 30,000 companies, plus more than 5,500 analyst ratings, and reports and newswires from 82 companies. Other research providers available to all clients include Zacks Investment Research, Morningstar Equity Ownership, Market Realist, 24/7 Wall Street and Seeking Alpha. Over 100 additional providers are also available by subscription.
Investment selection: Interactive Brokers offers something for everyone here: Advanced traders will love the huge selection of products, from standard offerings of stocks, options and ETFs to precious metals, forex, warrants and futures. The retirement-investor set will be happy with the broker’s impressive list of no-transaction-fee mutual funds — over 4,300 in all — and respectable selection of 98 commission-free ETFs (and Lite customers get to trade all U.S.-listed ETFs commission-free).
Interactive Brokers also has a robo-advisor offering, which charges management fees ranging from 0.08% to 1.5%. The service offers about 70 portfolio options, and 41 of those portfolios require just $1,000 to get started. (The management fees and account minimums vary by portfolio.)
Where Interactive Brokers falls short
Interactive Brokers’ shortcomings are primarily due to the company’s focus on advanced traders:
Inactivity fees: Interactive Brokers caters to active traders, and that focus shows up in its inactivity fees for IBKR Pro customers. Accounts with balances of $100,000 or less must meet a minimum of $10 a month in trade commissions, or Interactive Brokers will charge the difference as a monthly fee. Accounts with an equity balance of $2,000 or less must meet minimum trade commissions of $20. IBKR Lite doesn’t charge inactivity fees.
There is a break here for clients 25 or younger, who have a minimum monthly trade commission of just $3.
» Don’t trade that much? View our best online brokers roundup
Website ease-of-use. Interactive Brokers provides a great deal of information on its website, but finding and interpreting the information you want isn’t always easy. For IBKR Pro customers, the various commission and fee structures can make it hard to quickly identify what your costs will be. Portions of the website are dedicated to institutional, broker and proprietary trading accounts, and that can be confusing.
Is Interactive Brokers right for you?
Interactive Brokers has always been a great choice for active traders, especially those who can move into the broker’s cheaper volume-pricing setup. Now, with the availability of free trades with IBKR Lite, even casual traders might find Interactive Brokers a strong contender. But beginner investors might prefer a broker that offers a bit more hand-holding and educational resources.
Top Financial Advisor Scams and How to Avoid Them
Bernie Madoff, the once highly regarded investment advisor turned Ponzi swindler, exemplifies the dark underbelly of the financial advisor field. At first, Madoff appeared to be the perfect financial professional for his clients. The rich and elite had no idea their stellar returns were funded by incoming Madoff investors. If the wealthy elite can get snookered by a financial advisor, what’s to protect the average individual from the same fate? Beware of financial advisor scams and learn how to protect yourself.
- While there are many honest financial advisors, there are also many unscrupulous ones engaging in fraudulent behavior; it’s important to know the most common ones to look out for.
- Bernie Madoff has become synonymous with the Ponzi scheme, in which the payment of returns to current investors come from money deposited by new investors; meanwhile, the advisor siphons off some of the money.
- The affinity fraud targets a group, often in combination with a Ponzi scheme, such as a religious organization or friend group, by convincing the group to go along with a scam because their friends are involved.
- Other scams include misrepresenting qualifications, such as claiming experience or certifications you don’t have or promising unrealistic returns, such as claiming an investment will generate huge numbers.
- With a “churning” scam, the advisor makes lots of unnecessary trades, which costs the customer in commissions and often results in less-than-stellar investment returns.
According to the Securities and Exchange Commission (SEC), “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk.” The Ponzi scheme is a classic scam and incorporates components of other scams as well. The investment proceeds in this classic scam are simply the new investors’ monies doled out to existing clients. Without fail, the initiator of the Ponzi scheme siphons money off to fund an extravagant lifestyle.
The affinity fraud targets a particular group with its ploy, frequently in conjunction with a Ponzi scheme. This scam is effective because we tend to trust other members of our “tribe.” The cohort group might share the same religion, cultural background, or geographic region. This affinity targeting makes gaining new participants in the scam easier because there is a built-in level of trust. To further con the participants, the scammer might belong to the group or pretend to be a member.
The following affinity scam-Ponzi scheme targeted Persian-Jewish community members in Los Angeles. Shervin Neman raised more than $7.5 million for investment in his so-called hedge fund. He promised that the fund invested in foreclosed real estate which would be quickly bought and then resold for a profit. In reality, Neman used the money raised to fund his extravagant lifestyle and pay off new investors.
Misrepresentation of credentials is another way financial advisors scam the unsuspecting public. The field of financial planning is ripe for malfeasance because there is not one particular credential or licensing requirement to practice. In fact, there are dozens of financial planning designations such as certified financial planner (CFP), registered investment advisor (RIA), certified public accountant (CPA), chartered financial analyst (CFA) and many more. The public may not be aware of the designations, ethics, or requirements for certification and thus may be receiving advice from someone with no education, experience, or background in the investment advising field. It’s quite easy for someone to hang up a shingle and start doling out advice. The scammer can then close up shop and walk away with the proceeds or swindle the unsuspecting clients with fake products.
Promising or even guaranteeing higher than market returns for your investment is a common trick. The popular axiom, “if it’s too good to be true, it probably isn’t” is usually accurate. It is unlikely that an advisor can offer a client returns that are unavailable to the rest of the world. This scam preys upon the clients’ greed and dreams of easy money. If an advisor offers or guarantees returns higher than 12-15%, it is likely a scam. For example, over the last 85 years, the U.S. stock market has averaged approximately 9.5%. This return is not a “safe” return, but quite volatile, meaning there were many negative return years over the decades.
In 2020, owners of a Dallas, Texas-based voice over Internet Protocol (VoIP) offered Christian investors, affiliated with a private school, returns as high as 1,000% per year to invest in their company, Usee, Inc. As one would expect, they have been prosecuted by the SEC.
Many stockbrokers have been charged with the “churning” scam. Since traditional stockbrokers are paid when their clients buy or sell a security, they can be motivated to make unnecessary stock trades to pad their own pockets. The churning scam involves the financial advisor making frequent buy and sell trades, which not only costs the customer in commissions but usually results in sub-optimal investment returns.
There are many other investment scams as well as additional varieties of the schemes mentioned above. Next, find out how to avoid falling prey to a shady investment advisor.
Vet and verify the financial advisor’s background. Find out if the advisor has received any disciplinary action or complaints. These websites help uncover unscrupulous advisors: www.finra.org/brokercheck, www.adviserinfo.sec.gov, www.nasaa.org, www.naic.org, and www.cfp.net.
Ask how the advisor is compensated. Is it by the commission, assets under management, fee, or a combination of payment structures? If the potential financial advisor is unclear or hedges when asked about fees, walk away. Ask for the advisor’s ADV Part II document which explains the professional’s services, fees, and strategies.
When discussing investment ideas and strategies, ask about the advantages and disadvantages of each recommendation. There are no perfect investments, and every financial product has a downside. If the advisor is unclear or you don’t understand the investment, it may not be for you. Although, you may consider gathering a second opinion.
Do not give the financial advisor a power of attorney or ability to make trades without first consulting you. Require every financial action to be cleared with you first. Further, make certain you receive statements not only with the advisor’s letterhead, but also from the custodian, or financial institution which holds your money and investments.
When vetting a potential advisor, it’s important to ask for names of satisfied, long-term clients. However, while this is a good idea, in theory, this protection has a downside, as the referrals could be prescreened or friends of the advisor.
The Bottom Line
Do not act in haste. Always take time to think about or “sleep on” a financial decision. An attempt to rush you should be a red flag. If there’s a good opportunity today, it won’t go away tomorrow. Don’t be afraid to walk away if an offer doesn’t seem right.
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