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Your Financial Adviser Is Lying to You

By Dr. Steve Sjuggerud
Monday, February 26, 2018

I get so mad, I just want to scream...
 
I HATE IT when I get letters like the one below... because I hate it when people try to mislead our subscribers.
 
You see, one of our readers recently sent us a question.
 
And my answer is, "Your financial adviser is lying to you."
 
Here's what the subscriber wrote to us:
 
We just heard from one of our financial advisers that Ameriprise discovered that KraneShares is having some kind of management problems and we should be warned. Is it true and should we be cautious about our investments in several KraneShares Funds?

It is NOT true.
 
If you're not familiar, KraneShares provides the top exchange-traded funds (ETFs) when it comes to investing in China. I've written about two of its ETFs as ways to invest in China – the KraneShares Bosera MSCI China A Fund (KBA), and the KraneShares CSI China Internet Fund (KWEB).
 
The statement from the Ameriprise Financial adviser (if he really said that – I hope he didn't) borders on defamation. It's unlikely that Ameriprise is privy to information about KraneShares that nobody else knows.
 
More likely, Ameriprise simply doesn't want to sell the two KraneShares funds I've written about. And the financial adviser made up a reason why.
 
Nothing is wrong at KraneShares. And nothing is wrong with these two index funds that have a combined TWO BILLION dollars invested in them. They are not leveraged. They are two ordinary ETFs.
 
So what's going on here?
 
Barron's newspaper addressed this question two weeks ago, with a story called "The Latest Casualty in the ETF Fee War – Objective Advice."
 
The Barron's article explains that brokerage firms are reluctant to sell funds that they don't make much money on...
 
It's hardly news that money managers have been fighting for fund assets, lowering prices on index funds... Most brokers offer "no-transaction fee" ETFs. In the past, these NTF platforms were often made up of ETFs that had been chosen by independent research and data providers, such as Morningstar... Now, the funds on these NTF platforms are largely a function of ETF providers paying to be there.

Barron's doesn't mention Ameriprise in particular. This is just a relatively new industry-wide issue for all brokerage firms. If the brokerage firm doesn't make money by selling that ETF, then it doesn't "approve" selling it.
 
Here's the way these relatively new conversations go:
 
Customer: "Hi, I would like to buy an index fund ETF with the symbol XYZ."

Broker: "I'm sorry, we can't buy that fund for you."

Customer: "What? But, why? It doesn't seem any riskier than any other ETF."

Broker: "Our company has determined that the fund is unsuitable. You can't buy it."

Saying it's "unsuitable" is bad enough. That's not telling the customer the whole story of why the firm won't sell the fund. (Besides, it raises the question – "unsuitable for whom?")
 
But warning the customer that there are "management problems" – when there aren't management problems – is far worse.
 
Some firms have found other, more honest solutions...
 
Fidelity, for example, doesn't make much money on Vanguard funds. Instead of dropping Vanguard funds and making up excuses, early this year, Fidelity instituted a 0.05% fee on Vanguard funds held in 401(k) plans.
 
So what should you do if a brokerage firm comes back to you and tells you a simple, ordinary index fund is "unsuitable"?
 
I would suggest checking with other brokerage firms to see if they can buy it for you.
 
It might be time to change brokers...
 
Good investing,
 
Steve




Further Reading:

"Never, ever allow a broker to be in charge of the conversation," Mark Ford says. "You're the boss. He should listen to you." Check out his classic essay about why you shouldn't be "loyal" to your broker right here.
 
"Your broker might scoff at this..." Dave Eifrig writes. If you deal with a broker or financial adviser – and if you use stops to protect your investments – make sure you're not falling prey to this mistake. Read more here.

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