Brokers Under Pressure To Sell In-House Products

Posted on September 17th, 2014 at 8:19 AM

From the Desk of Jim Eccleston at Eccleston Law Offices

Two former private bankers at Deutsche Bank filed a suit recently, alleging that their bank pushed them to steer their clients’ money into the bank’s own investment products even though those products were against the clients’ interests.

According to a survey, the pressure to favor in-house products is “very common” at banks and securities firms, especially when it came to higher-fee “alternative investments” like hedge and private equity funds.

Over the last two decades, some brokerage firms have moved away from business models favoring their own firms’ funds. However, advisers still routinely feel pressure to bolster their commission revenue, giving them an incentive to steer clients into higher-fee products to “pump up their production.”

Morgan Stanley, the nation’s largest retail force with 16,316 brokers, has less than 5 percent of its clients’ managed-account assets in Morgan Stanley-sponsored funds. At the Merrill Lynch unit of Bank of America, its 13,845 brokers also have less than 5 percent of its $552 billion in managed client accounts in Merrill’s own funds.

However, percentages are higher at some other big-name firms. Private bankers at Goldman Sachs, for example, typically put a majority of clients’ cash and fixed-income investments into Goldman funds, while steering a majority of their higher-risk assets such as actively managed stocks, hedge funds and private equity to external managers.

Likewise, Deutsche Bank’s roughly 335 brokers in the United States invest about 34 percent of their client account assets in the bank’s own investment products. JPMorgan Chase reduced the average percentage of its own funds in the accounts of Chase Strategic Portfolio, to about 31 percent from about 42 percent, according to the program’s current brochure.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston


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