Fintech… Welcome to the world of tomorrow!

By G. Kevin Mathis, Fall 2018 IAC Student Intern

First, what is Fintech? Defining Fintech is difficult because currently a consensus definition of Fintech is nonexistent.  Patrick Schueffel, a professor of Finance with the Institute of Finance, School of Management Fribourg in Fribourg Switzerland wrote an article, Taming the Beast: A Scientific Definition of Fintech, in which he aimed to define Fintech. Continue reading

Investor Crossword Puzzles: Conflicts of Interest

Investors are not the only individuals that stand to gain from investment transactions. Brokers, Investment Advisers, and Member Firms all have some sort of stake in the investment transactions. Most commonly, brokers and investment advisors have a financial incentive in buying and selling funds through commissions. Commissions are the fees paid to a broker by an investor for executing a trade. Additionally, brokers may earn money through mark-ups. Mark-ups are the difference between the market price of a security and the price at which a broker-dealer buys or sells that security directly from or to a customer.

There are also different types of accounts which help the brokers generate revenue. One of these accounts is known as a wrap account. The fee is typically calculated based on the total market value of the account, and it includes the management, brokerage, and administrative expenses for the account.

Another account which helps the broker generate revenue is known as a margin account. In these accounts, the broker lends the investor part of the money, which allows the investor more income potential on each of his investments. However, if the investment does not perform, the investor might be on the hook for the broker’s money too!

Finally, a common and precarious conflict of interest may come from proprietary funds. These can include house-brand mutual funds created when the brokerage firm that distributes the fund also acts as investment adviser for the fund, including both the management and distribution of the fund. When a firm sells proprietary funds it is difficult to ascertain who exactly the broker is looking out for. The more they sell of the house-brand fund, the more impressed their supervisors may be. However, this may come at the price of unsuitable recommendations for the investor.

Never be afraid to discuss these conflicts with your broker or investment adviser.

Across Continue reading

Warning! Data Aggregators!

By G. Kevin Mathis, Fall 2018 IAC Student Intern

Warning! Warning! Warning! Warning! Warning…

Thankfully, Kevin Malone alerted his friends and fellow Office co-workers about a matter of concern, their boss entering the room.  Kevin knew his co-workers could clearly see their boss, Robert California, but he was still concerned that his co-workers would be caught unawares.  Had he not issued his warning his co-workers would probably have been caught snooping through their boss’s notes.

Kevin Mathis wants to issue a warning to investors.  My warning concerns an alert about data aggregators that FINRA issued. Perhaps investors are aware of the issues associated with data aggregators.  But, as we learned from Kevin Malone, an additional warning helps.  Warning! in the context of data protection, data aggregators can cause problems for investors.   Continue reading

Investor Alert: (NOT) Using Credit Cards to Invest

By Ben Dell’Orto IAC Student Intern Fall 2018

If you find your broker or adviser asking if you want to pay with credit or debit, your answer should be “neither!”

According to the SEC, most firms that are registered with the SEC do not allow their clients to buy investments with credit cards. While this is a safe move on the firm’s part for many reasons, it is also helpful to investors, because it protects them from several potential issues.

Credit cards typically charge a higher interest rate than the return of many investments. So if your credit card charges 10% interest annual, an 7% return (not too bad) would leave the investor in a worse position than where he or she started, unable to pay off the interest with the returns. The SEC alert warns that on top of the annual interest, credit card companies charge transaction fees and late payment fees which add up quickly. Continue reading

Investing Crossword Puzzles: Investment Objectives

When evaluating what investment strategy is best for you, consider the objectives discussed below.

Capital Preservation is a conservative strategy of investing in fixed income investments or insured investments that attempts to avoid loss and protect the initial investment. Depending on age and limited time available to recoup losses, preservation of capital is an important goal for investors.

An investment with a tax advantage offers a tax benefit. These benefits could be a tax exemption or a tax deferment. Examples include municipal bonds, partnerships, unit investments, and annuities.

A tax-sheltered income is income that is not taxable due to a non-cash deduction, such as depreciation (for example, a 403(b) plan, which is a tax-sheltered annuity plan).

A growth objective is an investment strategy that focuses on capital appreciation. The goal of this type of fund is to increase the value, so the fund is focused on investments that will increase in value, though this is often combined with higher risk.

Investing on speculation means trading in an asset or conducting a financial transaction that has a significant risk of losing most or all of the initial investment, with the expectation of a substantial gain. The expectation of substantial gains acts as an incentive that more than offsets the risk of loss.

Across Continue reading

Wednesday’s Word: Viatical Settlements

Ben Dell’Orto Fall 2018 IAC Student Intern

Even in the cutthroat world of investing, it doesn’t get much more morbid than “betting on death.”

A viatical settlement, also called a life settlement, is an investment where the purchaser buys a person’s life insurance policy. The insured individual needs money, frequently for a medical treatment, and accepts a sum less than the value of the policy from the investor. The investor also doesn’t necessarily have to purchase the whole policy, as brokers often split the policy among multiple investors, allowing investors to minimize risk by purchasing a smaller portion of several policies. Continue reading

Shafiq (J.D. ’18) Honored for Helping Aggrieved Investors

Each year, the Center for Clinical Programs makes a difficult decision to identify one student out of many exceptional clinical students to receive the Clinical Legal Education Association (CLEA) Outstanding Student Award. For the 2017-2018 school year, the Investor Advocacy Clinic (IAC) selected Qudsia Shafiq (J.D. ’18) as the recipient.

IAC clients are everyday people like hairdressers, teachers, retirees, and tradespersons – who have saved money a majority of their lives. Losing their nest egg results in housing instability, bankruptcy, inability to purchase necessary medications, or as one of Shafiq’s clients put it, “having to choose between buying dog food or toilet paper.”

IAC clients are reluctant when they come to us.  They had previously placed trust in a financial adviser who broke a promise to provide investment advice consistent with the client’s goals. Building a relationship with a client who has already been wronged by a professional is even more challenging than the securities law students must master to resolve what the industry calls “small claims.” Shafiq excelled at developing relationships with her clients and helping them rebuild trust.  She did this through compassionate listening and by going above and beyond in her representation.  As one client shared in a thank you note about a case on which Shafiq worked, “Thank you for all the hours (100s of them) put in on my behalf!  Amazing to see all of you in action.”

Shafiq’s work included decoding thousands of pages of brokerage statements and explaining to clients why they lost money. She helped her clients recover their losses and ensure their future financial stability. Shafiq’s work with the IAC did not end when she met her weekly hours. She took ownership of her clients’ cases and exceeded the minimum requirements. Shafiq continued her work after the semester formally ended and looked for additional ways to volunteer and help her clients.

In addition, she is committed to ensuring that those in need are represented in discussions about how financial regulation impacts them.  As a clinic II student, Shafiq testified before the U.S. Securities & Exchange Commission’s Dodd-Frank Investor Advisory Committee in October of 2017.  In her testimony, available here, she discussed how small investors need lawyers to help them solve securities issues and the enormous justice gap between the wealthy investor and the typical American trying to make ends meet in retirement.  Her testimony was praised because of her passion for her clients and her ability to communicate why a $5,000 investment loss is devastating for our retiree clients.

Shafiq’s advocacy continues beyond law school. She has worked with the IAC’s director to share her clients’ stories with key policy makers, regulators, and industry leaders. Due to her compelling testimony and dedication, she was invited to join a discussion of financial services policymakers on the problem of regular investors with “small” losses.

Regular investors have a strong ally and friend who will continue to be on their side throughout this Georgia State Law grad’s legal practice.