Moving Units: What JPMorgan Can Teach Us About Banks Selling Their Own Mutual Funds

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Last week’s July 3rd edition of the New York Times reports that past and present brokers from mutual fund giant JPMorgan Chase were encouraged to favor JPMorgan products in their financial advisement to customers, even when competitor products were better performing or better suited to a consumer’s budget. Moreover, JPMorgan marketing materials are said to have exaggerated the profits made from at least one major offering. For a further definition of misrepresentation and unsuitability, as well as an understanding of potentially defective products, visit the Investors section of our firm’s website.

JPMorgan’s marketing measures appear to have led to several profitable post-crisis years for the company. This success has come despite a volatile market that has shaken investor confidence in funds, and findings from fund researcher Morningstar that since 2009, 42% of JPMorgan funds have failed to meet the average performance of comparable products.

There has been concern from market analysts that consumers in many cases are being sold JPMorgan products based on theoretical returns over actual performance. Apparently, one balanced JPMorgan portfolio boasts professes a hypothetical return of 15.39% of fees after fees over three years, the reported return was 13.87%, lower not only than the advertised hypothetical, but also the standard of comparison JPMorgan depicts in marketing materials.

While many larger firms have refocused their efforts on advisement of working class investors, JPMorgan’s practice of selling its own created funds remains controversial due to potential conflicts of interest. In 2011, JPMorgan was the only bank among the ten largest fund companies. That same year, the company paid $373 million dollars in arbitration after a panel ruled that favoritism had been shown by the bank toward its own products.

“It said financial adviser on my business card, but that’s not what JPMorgan actually let me be,” JPMorgan broker Mathew Goldberg told the Times. “I had to be a salesman even if what I was selling wasn’t that great.”

With this apparent greater emphasis placed on selling funds, JPMorgan is reported to have added hundreds of brokers in its branches since 2008, bringing its total to roughly 3,100. These brokers offer investors, among other pieces, grouped packages of stocks and bonds, ranked into six levels of risk.

Much of what JPMorgan earns from these sales stems from annual fees, which can be as high as 1.6% of total profits. Unlike many sellers of funds, it is reported that JPMorgan does not waive fees and expenses that would be charged from its own products.

As an in-house incentive to selling company products, JPMorgan is purported to have circulated lists of brokers whose clients collectively have with the largest amounts in the Chase Strategic Portfolio, one such popular product among customers. Top advisers are reported to have nearly $200 million in assets in the program.

The debate over JPMorgan’s approach toward the sale and marketing over its own products market highlights the importance of investors rights to necessarily information and candor from their brokers. It is the right of all investors to be granted any publicly available information pertaining to the truest value of their portfolio and its components. Selective omission of such information toward certain customers clearly goes against financial practices regulated as law by the SEC. If you or someone you know believes that the treatment of JPMorgan’s portfolios of funds have done harm to their finances, it is within their rights and best interests to contact a legal professional.