Industry Realities

Time and time again, the words “trust” and “integrity” are misused and abused in the financial services industry. All financial firms claim they are “different”. They claim they are all independent, client-centered, ethical, transparent, with lots of trust, employee-owned for some, long history, etc. How do these great self-claimed traits actually translate for the investor? How is this truly implemented and reflected in the investor’s account?

Unlike the large majority of investment firms, we do not receive any compensation from any mutual fund companies. We are not on the leash from the mutual fund industry. We have no side agreements or back room deals. Everything is transparent with us, because we are Vere.

Cold hard facts of the foundation of the financial industry

Is your financial firm objective and transparent?

Very few firms or advisors actually are what they say they are. We got tired of that and we decided to open our own business to provide a solution to the huge issues the industry has created by always striving to make more money from you rather than for you, the investors.

Fiduciary vs. suitability standards or advisors vs. brokers

Every financial firm gives investors access to mutual funds but just a very few actually focus on selecting the best managers. Here is one of the reason: the huge difference between suitability and fiduciary: which one do you want?

Advisors follow the Fiduciary Standard

The fiduciary standard was established as part of the Investment advisers Act of 1940. The U.S. Securities and Exchange Commission (SEC) holds advisers to a fiduciary standard that requires them to act in the best interest of the client – specifically stating that they must put their clients’ interests above their own. The fiduciary standard also dictates that the Investment adviser must divulge any possible conflicts.

Brokers follow the Suitability Rule

Brokers are held to a different standard that is set by their governing body, Financial Industry Regulatory Authority (FINRA). They must follow the suitability rule—which states that a broker needs to believe that recommendations given are consistent with the interests of the client’s financial needs and circumstances at the time. The rule does not set standards around conflicts of interest or a need to place clients’ interests before one’s own. As a result, many believe the suitability rule leaves room for conflicts to arise between a broker and client. One of the biggest conflicts concerns commissions paid to the broker for managing investments in the company’s fund offerings.

Revenue sharing agreement

How would you feel if your doctor was only prescribing medicine that he gets paid commissions on? We don’t believe a revenue sharing agreement should have a place in the industry when advising clients. Revenue sharing agreement actually display a weakness in the fund that has them in place with a distributor because funds with the best performance sells themselves and don’t need to pay commissions to get recommended.

The exact same thing applies for your investments: you do not want to work with a firm that has any revenue sharing agreements in place. The large majority of firms have a much reduced playing field constrained by revenue sharing agreements which is directly and disappointingly reflected in clients’ account.

Non-objective advice for fund selection

Revenue sharing is one of the mutual fund industry’s most controversial and least talked about practices. Revenue sharing is money paid to financial advisers or broker-dealers in exchange for buying funds from a fund company. These payments are often not disclosed to investors. This is a common practice among brokerage firms where mutual fund companies that pay the brokerage firm get preference in their sales efforts. It is a pure biased advice given to investors and cheating clients.

Costly and hurting the fund performance

Revenue sharing payments are mutual fund distribution costs that conflict with continuing shareholder interests by directly reducing fund assets and shareholder returns.

Transparency and disclosure issues

Revenue sharing payments are not separately disclosed in fund expense ratios and for this they have been called the fund industry’s “dirty little secret.”

Mutual Fund Competition

The large brokerage firms have mutual fund sales competitions! Yes they do! How does it make you feel to know that certain advisors are going to recommend that fund this quarter for his own interest?

Difference of objectives between mutual funds

Mutual fund companies that want to raise assets
The fund never closes. The focus is on marketing and distributions, not on performance. It ‘s all about volume.

Mutual fund companies that want performance
The fund could close to new investors. The focus is on research, management and performance, not on marketing. It’s all about quality and efficiency.

Doing what is right: closing the fund.

Fund managers close their funds to new investors because they want to keep their investment process pure. They don’t want to change their proven process to make investors happy. They do what is right for the client. A fund closing to new investor is always a good sign because the manager(s) is looking for quality above volume in his fund. In other words, the focus is on the efficiency and the performance of the fund, not on the management fees from the volume of investments. This is key.

THE INDUSTRY REALITY AND PRIMARY OBJECTIVE IS TO MAKE MONEY FROM, RATHER THAN FOR, THE INVESTORS.