Arbitrators have scored a $376,000 settlement from noted investment guru Ken Fisher's gargantuan RIA on the grounds that his reps breached their fiduciary responsibilities to a retired client.
While Fisher's PR team is pitching the case as a testament of sorts to the firm's integrity -- one loss in seven years isn't bad when you manage $41 billion, they say -- what's most interesting here is the glimpse into the way Fisher's reps work.
The client who brought the complaint signed up with Fisher in 2007 after she signed up for a free book and was thereafter subjected to a hard sell until she agreed to become a client.
Once they got her in the door, they seem to have run her assets through a "Suitability Wizard," which seems like something you'd call a tool designed for securities reps bound only by the suitability standard, and not the fiduciaries at Fisher.
The tool told her advisor that she wanted to maximize the eventual value of her estate and not draw down her assets in life, so he converted her $876,000 bond-only portfolio into stocks.
As it turns out, her husband planned to retire in 2008, at which point they planned to use the money for income. And with no kids, leaving a fat legacy was not exactly high on their list of priorities.
Furthermore, the arbitration process revealed that 80% of Fisher clients get the exact same treatment: everything is moved into stocks picked to reflect the performance of the MSCI World index, and that's that.
While Fisher claims that his fees are "transparent," he doesn't actually publicize them, so we don't know how much of a management fee this client paid for the privilege of what seems to boil down to moving everything into an index fund like EWAC and then never touching the allocation again.
However, global equities plunged 35% over the next year while a full 43% of the client's nest egg evaporated, so either the fees were high or the Fisher team simply underperformed their own benchmark by a wide margin.
Needless to say, fiduciaries need to live up to a higher standard than "suitability," and market gurus like Fisher need to at least match the market to justify their fees.
It's not like this particular client was a small account by the firm's standards. With 38,000 accounts on the books, the average client brings about $1.07 million to the Fisher table.
Either way, as currently constructed, the settlement only makes the client whole. No opportunity costs, no damages or interest, not even -- as yet -- legal fees.