In perusing the WSJ today, an article caught my eye. The venerable Charles Schwab has become the latest company to discontinue offering load mutual funds, where investors pay what generally is a high commission in addition to regular fund fees, as a result of the new Department of Labor law requiring brokers to act as a fiduciary. Being a fiduciary is something that we at T&T Capital Management (TTCM) have always taken extremely seriously. Being investment advisors, instead of brokers, we have always had the privilege (not an obligation for us) to always act in our clients’ best interests.   Not only have we never sold a commission product, we have written extensively against the egregious fee structures employed by mutual fund companies and annuity sponsors. In addition, we have pointed to the evils of the commodity industry where often 90-98% of clients actually lose money, despite paying fees that can easily be as high at 5-10% per month!

In embarking on a path to manage the hard-earned funds accumulated by individuals and families across the country, one is bound to build strong relationships. It is a responsibility that we take extremely seriously and while nobody can ever guarantee profits, we can guarantee that we will work as hard as is possible to obtain them, while also acting in a transparent and honest manner. I cannot fathom how brokers and other advisors can meet with these same people and pitch products where they are taking 8% commissions up front and that clearly are not in their clients’ best interests. When we started T&T Capital Management, nearly 5 years ago now, we made a conscientious decision to never use 3rd party products, or delve into alternative commission-based products due to the conflicts of interest that they present. We are firm believers that in offering what we truly believe is the best product at a reasonable price we would be able to grow, and through referrals and our extensive education program we could thrive without any real marketing program. That decision was the best one we made and has worked out extremely well as business has grown at a very rapid rate each year.

The reason I bring this up is that it is important to understand how this industry works. There are constant conflicts of interests. Shows such as Mad Money and Fast Money on CNBC make money through selling ads for the network. For ads to sell at a high price there has to be high viewership. Investors like us, that take a 3-5 year perspective when we buy a stock, are not exactly a target market, because much of the noise that they talk about is really meaningless in the big scope of things. Instead, everything is catered to the short-term trader. With no track records provided, market pundits advocate going in and out of dozens of securities without any regard for valuation and/or tax considerations. It is no different than how the lights, the free drinks, and the pretty cocktail waitresses promote gambling in Vegas casinos.

When making an investment decision here are a few key questions, that if you ask you’ll not fall prey to the various schemes and snake oil salesmen that unfortunately are so pervasive in the industry:

Are you (the salesperson) in the same investments that you are recommending to me? If not, why? (At TTCM, we invest all of our liquid assets in the same positions and strategies that we do for our clients)

Do the people with the best investment track records use these types of products or strategies? (hint, they don’t use annuities when interest rates are at all-time lows, or index funds in an expensive market)

What is your compliance record and can you explain any infractions that you may have? (TTCM has never had an infraction or a complaint)

Where will my money be held and who exactly will have access to it? Make sure it is always a respected brokerage or bank and that the broker or advisor only has limited trading authority, so that they can’t access your funds for other uses. I think most people would be very surprised as to how many Ponzi and Ponzi-like schemes occur and are not reported. I’d say that at least 7 clients that I know of have fallen victim to something over the last 5 years, which is pretty terrifying.

If you are ever looking at an investment opportunity and just want to run it by us to get a second pair of eyes, please don’t hesitate to do so. We understand the complexity and opacity of various products and are happy to do anything we can to help educate as part of the fringe benefits of being a client. Thank you very much and please let us know if we can assist in any way!

Charles Schwab to Cease Selling Load Mutual Funds