This is kind of a crappy NYT story

[giandujakiss]

Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others

Facing a slump after the financial crisis, JPMorgan Chase turned to ordinary investors to make up for the lost profit.

But as the bank became one of the nation’s largest mutual fund managers, some current and former brokers say it emphasized its sales over clients’ needs.

These financial advisers say they were encouraged, at times, to favor JPMorgan’s own products even when competitors had better-performing or cheaper options. With one crucial offering, the bank exaggerated the returns of what it was selling in marketing materials, according to JPMorgan documents reviewed by The New York Times.

“I was selling JPMorgan funds that often had weak performance records, and I was doing it for no other reason than to enrich the firm,” said Geoffrey Tomes, who left JPMorgan last year and is now an adviser at Urso Investment Management. “I couldn’t call myself objective.”JPMorgan defends its strategy, saying it has “in-house expertise,” and customers want access to proprietary funds. “We always place our clients first in every decision,” said Melissa Shuffield, a bank spokeswoman. She said advisers from other companies accounted for a large percentage of the sales of JPMorgan funds.

At first, JPMorgan’s chief, Jamie Dimon, balked at the idea of pushing the bank’s investments, according to two company executives who spoke on the condition of anonymity because the discussions were not public. Several years ago, Mr. Dimon wanted to allow brokers to sell a range of products and move away from its own funds. Jes Staley, then the head of asset management, argued that the company should emphasize proprietary funds. They compromised, building out the fund group while allowing brokers to sell outside products.

Now, JPMorgan is devoting more resources to the business, even as other parts of the bank are shrinking. Since 2008, JPMorgan has added hundreds of brokers in its branches, bringing its total to roughly 3,100.

And it goes on in that vein.

The reason this is a crappy story is that it fails to mention that this is actually - horrifically - legal, despite the recommendation of the SEC to change it.

As explained in more detail here, the securities laws distinguish between brokers and investment advisers. Investment advisers have a fiduciary duty to the client - that means they are required to put their clients' needs first. Brokers don't. Brokers have a duty to make sure a recommended security is "suitable" - which means generally appropriate for the client's investment goals and risk appetite - but beyond that floor, they have no duty to put the client's needs first. They often push proprietary products, and they've long been known for pushing products that produce higher commissions, even when those are not as good a deal for the client.

Of course, a lot of investors don't understand that. Even those that do probably don't really process it well - there's some evidence that even when the broker discloses that he/she earns higher fees for a particular product, the client will accept the recommendation to buy that product.

In January 2011, the SEC produced a report recommending that a fiduciary standard be imposed on brokers, but - surprise! - after industry howls, they've gone back to conduct an additional cost benefit analysis. Of course, that might be necessary, since the DC Circuit has started to impose insane cost-benefit requirements on anything the SEC tries to do.

But it's a crappy NYT story, because none of this is mentioned.