I want you to picture a furnace…

“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,”
– Geoffrey Tomes, ex-JPMorgan “financial advisor”

I want you to picture a furnace…broiling and roiling with steam and smoke, the air around it bending and wavy in a desert distortion from the heat.  That furnace is the hunger for profit at a typical Wall Street wirehouse brokerage firm.  Next I want you to picture a massive, self-replenishing mound of coal, spilling over in its abundance, unable to be depleted as more coal is continuously dumped on top.  That mound represents customer assets at the wirehouse and the continuous inbound flows of said customer assets.

Finally, I want you to picture a man wearing a leather apron and armed with a massive steel shovel.  That man continuously, and without hesitation or pause, is shoveling the coal into the firm’s furnace.  Without even looking up at how the last shovel-full has fared once having been tossed into the inferno, the man is already bent into his next thrust, lifting and launching a follow-up pile into the very same fire.

That man represents the brokerage salesforce at the wirehouse.  He is shoveling the coal (your money) as quickly as he can to satiate the firm’s need for short-term revenue gains into the furnace.  That’s his job no matter how white his smile or what set of caring questions he asks you.

This is not illegal, but you have the right to decide whether or not you want your retirement capital to be in that mound of coal, and treated as such by the leather-clad steam shoveler with the Series 7 license. Don’t get me wrong, the shovelers are nice guys, I know many of them and was one myself once upon a time.  They mean well but they are still chained to the furnace, it is how they earn their daily bread.

It is only once you understand this analogy that you can understand why Wall Street’s retail brokerage complex is what it is today.

Here’s DealBook’s latest “revelation” – which I’ve already detailed in my book Backstage Wall Street, but whatever:

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.

The benefit to JPMorgan is clear. The more money investors plow into the bank’s funds, the more fees it collects for managing them. The aggressive sales push has allowed JPMorgan to buck an industry trend. Amid the market volatility, ordinary investors are leaving stock funds in droves.

This will not change until a fiduciary standard is assigned to every relationship between retail advisor and retail client in the United States.  Until then, this hide-behind-suitability bullshit will continue.

To be clear, I am for the abolition of retail brokerage so long as it is conducted on a transactional commission basis.  Yes, I am an admitted ideologue and a radical on this particular topic, I’ve seen too much not to be.

If you think that’s an overly extreme stance, guess what – the FSA (the SEC of the UK) has already done it.

Backstage Wall Street on Amazon