Arb process benefits from industry panelists

I read the article “SEC OKs all-public arb panels” (Feb. 7).

In years of being an arbitrator, I have found my fellow panel members to be disappointingly lacking in investment knowledge. They are great people who are fair and have common sense, but they don’t understand investment products.

They need someone to explain things to them. Without an industry arbitrator on the panel, they will be “sold” by the experts and by counsel.

At least the experts are usually pretty knowledgeable, but in many cases, the experts are experts in calculating losses, not explaining investments. This happens a lot.

In this case, the panel members will be sold/educated by only one side. I think it is better to have an industry arbitrator on the panel.

Regarding the issue of cases that favor respondents, of course once a case gets to arbitration, the respondent will be the party that you expect would win more cases; otherwise, they would have settled prior to the hearing.

Most strong claimant cases never make it to a hearing. This gives the impression that the arbitration process is biased.

In terms of the issue of claimants’ going to court — this will harm the claimants.

Right now, arbitration cases are reasonably quick and inexpensive. Because of this, claimant attorneys take cases on a contingency basis, only asking for claimants to pay the expenses (filing fees, etc).

Should cases go to court, respondent firms (deep pockets) will delay, stall, etc., and make the process much lengthier and more expensive. If this happens, claimant attorneys on contingency will make less per hour.

The result will be that they will take on fewer cases and/or want to be paid an hourly fee. Claimants who have lost money, not knowing the outcome or costs involved, will be less likely to pursue their cases and representation.

In my opinion, the best option is to leave the legal process as it is and Finra to educate public arbitrators on investment products and suitability.

Neal Tourdo

Senior vice president

and national sales director

Mastrapasqua Asset Management

Nashville, Tenn.

Many don’t need fiduciary advice

The fiduciary concept has reached epidemic proportions, and the editorial “SEC should require fiduciary standard” (Jan. 17) illustrates this.

Like most, you don’t understand how the fiduciary standard affects the investing public. There are two inherent problems that make the concept impossible.

First, investors can’t afford fiduciary services, nor do they really need fiduciary services from brokers or financial advisers.

It is different for advisers who charge clients hourly or annual fees, or who customarily charge fees for advice and actually bill clients for such. It is different for many reasons.

These advisers serve those who need and can pay for services that are indeed fiduciary in nature. The clients recognize the need for the fiduciary standard and pay for it, and these advisers are capable of providing it, much the same way that lawyers provide legal services.

Most investors don’t need this level of advice, nor can they afford it. I suspect that my services, generally provided at about 1% of assets, would, under a fiduciary platform, be adjusted to 3% to 5% or more.

Most advisers and brokers are incapable of providing fiduciary services, and many very capable people wouldn’t want to. The facts are that about 5% of the public needs true fiduciary services, and I estimate that about 5% of the true fiduciary advisers are very capable of providing suitable services to that elite group.

Unfortunately, you all seem to live in ivory towers, failing to understand the basic, real needs and pocketbooks of most of the investing public.

If you think I am wrong, go out there and see for yourself. Find out who John Q. Public is.

If the fiduciary standard is adopted, it will produce at least two terrible consequences: the “retirement” of many honest, capable advisers and brokers, and the skyrocketing cost of rendering investment advice in a fiduciary environment to those who don’t need it or can’t afford it.

There will be no winners, only losers, and our industry will have truly failed the investing public.

Jon Lovecchio

Principal

Jon Lovecchio Financial Services Inc.

Utica, N.Y.

Related Topics: Letters To The Editor