Wall Street Potholes

Copyright © 2016 by Simon Lack. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley.com. For more information about Wiley products, visit www.wiley.com.

Library of Congress Cataloging-in-Publication Data

Lack, Simon, 1962- author.

Wall Street potholes: insights from top money managers on avoiding dangerous products / Simon Lack.

pages cm

Includes bibliographical references and index.

ISBN 978-1-119-09327-5 (cloth) – ISBN 978-1-119-09329-9 (ePDF) – ISBN 978-1-119-09325-1 (epub)

1. Investments. 2. Portfolio management. 3. Finance, Personal. I. Title.

HG4521.L25 2016

332.6 – dc23

2015029534

Cover Design: Wiley

Cover Image: © iStock.com/Mlenny

Financiers were never especially well liked prior to the financial crisis of 2008. The bank bailouts compounded a general belief that bankers always make money regardless of the outcomes for their clients. This popular view had never sat easily with me as one who had made his career first in London and then on Wall Street. Although there were inevitably bad actors, I clung to the idea that part of the reputational challenge was the result of poor understanding by the general public.

Then I met Penelope, as described in Chapter 1, and was prompted to learn about non-traded REITs (real estate investment trusts), a murky corner of the securities markets that can only damage the reputation of anybody involved in the sale of these instruments to the general public. The fees, conflicts of interest, disingenuous marketing, and more fees were breathtaking. That it was all legal, because of its disclosure via a thick, densely written prospectus, was astonishing.

Discussions with industry colleagues found like-minded practitioners with their own examples of shoddy, self-interested advice provided to trusting clients. It soon became clear that a collection of advice from people on the inside would fill a needed gap in the education available to people simply trying to save for retirement.

The CFA Institute's efforts to shape the “Future of Finance,” and especially the Putting Investors First initiative, provided further impetus to promote better outcomes by warning against the wrong types of advice and products. Too often, the financial salesperson's interests are placed well ahead of the client's.

It is with this goal in mind, of Putting Investors First and thereby aiding better outcomes, that the five authors of this book have come together. The few we may offend are far less important than the many we hope to help.

Inspiration for this book came from my contributing authors Kevin Brolley, John Burke, Bob Centrella, and David Pasi. We all share a common vision that investing should be simpler, cheaper, and devoid of fee-laden traps. Further encouragement was provided by many other finance professionals, including Rich Covington and Tony Loviscek.