In the state of Massachusetts, there’s an investigation being mounted by the Secretary of State, William Galvin, into a securities broker who works in the investment division of Bank of America. Apparently, this fellow was the broker that met with some Bank of America clients, a married couple in their 60’s, who were seeking a superior return to that which they were receiving in standard bank vehicles like CDs. After investing a lot of money in the stock market with Bank of America in 2007, the husband committed suicide in 2009 on the heels of account losses in the neighborhood of $400,000 that resulted from the economic collapse we now all know too well. The family is alleging the usual things that are alleged when people who lose money in the stock market file complaints and sue brokers: that the broker misled, acted inappropriately, and was generally a bad guy when he helped the clients to place their market investments. Obviously, it is the actual suicide of the client, alleged to have been caused by despair over the losses, that makes this such a standout case over others that might be similar in nature but which are minus the drama.
So far, we know of no evidence that the broker was at all dishonest, thieving, underhanded, or anything else along those lines. Information to that effect may come out at some point, but it’s interesting to note that we’ve not seen any as yet. What we do know him to be is a guy who sells investments…perfectly legal investments, for a very mainstream financial institution. Could it be that doing such a benign sort of thing has the potential to become tantamount to murder in the nanny-state America of 2011?
Perhaps this warning will be dispensed to newly-licensed investment professionals: “Be careful whom you retain as a client; if you sell someone a mutual fund and it goes down in value, and he goes off the deep end, kills himself, massacres a family of six, or does something else similarly horrible, it will be your responsibility, Mr. Broker, and we will get you.”
While no reasonable person should be anything less than mortally offended at fraud-minded investment professionals, mortgage companies that falsify documents to the pronounced detriment of loan customers, and other like misdeeds in the financial services industries, there is no evidence that any sort of behavior even approaching the aforementioned was engaged in by the broker or Bank of America. Throwing out bathwater is what we should be doing…but I think we’re still supposed to hold on to the babies.
Let’s be clear on this bit of “inside baseball:” stock market losses, in general, remain “paper” losses as long as you do not actually sell and thus lock them in. If you, as an investor, decided to go ahead and sell your investments at their lowest point, rather than hang on for the rebound…because you were personally convinced that there was not going to be any rebound…how much blame should the person who initially sold you those investments shoulder in that? The simple truth is that there are plenty of people who, in a panic, decided to sell when the S&P 500 was at 676, its lowest point in the previous 13 years, while there are also plenty of others who decided to hang on through the turbulence and stay the course. The first group lost a bundle; the second group, with an S&P 500 now back up to over 1300 at this writing, is down about 15% from the market’s all-time high, and the way things are going, will likely be up from there in the not-too-distant future. Both groups went through the same market upheaval, but are separated by a singular decision to either remain invested…or not.
At the root of this remains the notion of the implied guarantee; that everything, all of the time, should be guaranteed by someone or something, and if that guarantee fails an inch, then the someone or something guarantor should be fined, prosecuted, thrown in jail, etc. The customer’s suicide is a tragedy, to be sure, but as long as there was full disclosure to the customers as to the nature of what they were buying when they made their investments, there is no fault to be borne by the broker or his employer for the subsequent performance of those securities. People who choose to live in America are those who choose to live in a society that is predicated on personal freedom, with all of the rewards…and risks…that are natural components of that freedom – that is how it has always been, and that is how it should remain.
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Bob Yetman, Editor-at-Large at Christian Money.com (www.christianmoney.com), is an author of a variety of materials on personal finance and investing, as well as on topics of fitness and self defense, to include the book Investor's Passport to Hedge Fund Profits (John Wiley & Sons, Inc.) and the unarmed combat training DVD Thunderstrikes – How to Develop One Shot, One Kill Striking Power (Paladin Press).