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I recently started creating a daily links post for the blog again. I read a million headlines every day and figured some folks might find it valuable if I shared the few I thought were the most intriguing – that and I obviously have a rare editorial gift in addition to my gift for editorializing.

In today's links, I highlighted a couple of articles that I found over at Bloomberg in rather ironic fashion. The first headline was, “Rich Clients Pumped for Fees in Private Banking's `Conflict of Interest'.” Is it any wonder then that, “Wall Street Despised by Americans in Poll Showing Majority Want Regulation,” (the subsequent headline)?

Could it be that Americans despise bankers and brokers BECAUSE they actually FEEL pumped for fees? There is a great deal of financial mistrust out there as evidenced by the fact that people now trust financial blogs more than they trust advisers.

As the Bloomberg article reveals, this mistrust is very well-founded:

Higher fees erode returns over time. A private banking client with $10 million invested, for example, who earns annual returns of 7 percent a year and pays 2.3 percent in fees, will hand $3.4 million to his bankers over the course of a decade. With fees of 0.9 percent, that client would pay $1.3 million…

“Most wealth managers and banks have a stumping conflict of interest because their riskier products earn them more fees,” says Drake, who worked at London-based Kleinwort Benson and Granville Plc for more than 20 years. “If your adviser is getting three times more for hedge funds and private equity than government bonds, you’re asking for trouble.”…

The financial crisis exposed “unsound incentive structures” that reward private bankers for pursuing their employers’ interests rather than those of their clients, wealth management consultants Ole Heggtveit and David Clarksonwrote in a report published in December by Oliver Wyman, a unit of Marsh & McLennan Cos….

Potential conflicts include encouraging clients to buy higher-margin assets rather than lower-risk alternatives, pushing the bank’s own products and third-party funds that pay commissions to the wealth manager as opposed to those that minimize costs, and promoting frequent trading over buy-and-hold strategies, according to the report titled, “Trust Me, I’m Your Private Banker.”

Bankers, brokers and insurance salespeople regularly do put their own interests ahead of their clients' for one reason: unchecked greed. Most people get into the finance industry to make money. The first thing they realize is the easiest way to do so is to “pump” their clients. The second thing they realize is that there's nothing stopping them. 

“Ninety percent of wealth management clients are not aware of the costs they pay indirectly,” the Bloomberg article reports. Clients might suspect or feel like they're getting “pumped” but don't care enough to do anything about it. And regulators can't do anything about it because it's legal.

Sadly, a key part of the financial reform package making its way through congress, forcing brokers and insurance salespeople to accept “fiduciary duty,” was dropped by lawmakers. This simple standard would have held brokers accountable for unreasonable fees and gone a long way towards promoting client interests over financial firms' interests.

Let's hope it somehow makes a miracle comeback.