Actually, for Wall Street, nothing has changed since the 1970′s.

The IRA was created in the early 1970′s with a so-called “loophole” that not even the latest White House Report on conflicted investment advice described.  The scope of the issue is significant, (one) that this so-called “loophole” has existed to the detriment of every retirement saver for 40 years and (two), because the media has yet to report it and cover its implications and (three), it doesn’t need public comments at the Department of Labor to change it:

Congress should insist the IRS Code be updated today to eliminate this loophole, with $7.1 trillion dollars at stake and subject to this “loophole”.

The “loophole” allows SEC Registered Investment Advisors, under the Investment Advisers Act of 1940, to avoid that Act’s fiduciary requirements.

The significance is many Americans have been paying for investment advice for their IRA for over 40 years, to a SEC registered investment advisor, believing this advisor was paid a quarterly fee to monitor their IRA investments on a regular basis.  When the IRA investor goes to FINRA because they have suffered losses due to a fiduciary breach, under the Investment Advisers Act of 1940,  the FINRA arbitration panel agrees to this Wall Street loop hole, “You may have been paying us a fee for investment advice, but we did not agree that we were providing you investment advice on a regular basis. Check the fine print!”

Brillant loophole, simply brilliant.

Brief History of Investment Adviser Act of 1940

Following the Great Depression, Congress enacted several securities laws to protect investors, including the Investment Advisers Act of 1940, which the SEC describes here, the fiduciary duty of anyone provided advice on investments:

Study on Investment Advisers and Broker-Dealers

“Investment Advisers: An investment adviser is a fiduciary whose duty is to serve the best interests of its clients, including an obligation not to subordinate clients’ interests to its own. Included in the fiduciary standard are the duties of loyalty and care. An adviser that has a material conflict of interest must either eliminate that conflict or fully disclose to its clients all material facts relating to the conflict.”

How Is “Investment Advice” Defined by the SEC and Interpreted by the Courts?

If a regular fee is paid for investment advice, the Advisor providing the “advice” is subject to the fiduciary standard and must place the interests of their client ahead of their own.  To the contrary, a stockbroker can place his employer’s interests first and ensure the product recommended is “suitable” at the time it is sold.

Example:  A retirement investor pays a quarterly fee to an “advisor”, an intermediary, registered with the SEC, an RIA, a “fiduciary” for ongoing advice on what product to buy and hold in their IRA.  This “advisor” also is a broker, like the Charles Schwab, Fidelity or Vanguard model or many “CFP’s” advisors that charge a quarterly fee for “investment advice” for managing your IRA.

The retirement investor is led to believe this advisor is a fiduciary.  They are told that.  The retirement investor believes that since he is paying a quarterly fee, that the advisor is looking at the investments and monitoring them.  That is what the “advice” fee is for.

The “Loop Hole” that Negates the Investment Advisers Act of 1940

IRS Code in IRA’s, written in the early 1970′s, provided an avenue for Wall Street firms to negate the fiduciary standard of the Investment Advisers Act of 1940.

The loophole:  The IRA retirement investor pays a quarterly fee to a SEC Registered Advisor, for selection and monitoring of all the  investments in his IRA.  He believes this SEC Registered Advisor (RIA) is monitoring what he was recommended on an ongoing basis for the quarterly fee.

No, Wall Street added to the IRS Code in 1975, the “loophole”;  “We have to mutually agree that we are providing you investment advice”.  Thus, Wall Street adds to its IRA Client Agreements:

“(Name of Wall Street firm) will make investment recommendations for your Portfolio, you are free to disregard those recommendations….”You acknowledge and understand that this is not a mutual agreement between you and (Wall Street firm) under which (Wall Street firm) provides recommendations on a regular basis, individualized for your IRA or other retirement plan, that serves as a primary basis for the plan’s investment decisions.”

The significance of this breach of securities law, The Investment Advisers Act of 1940

Nothing has changed since the 1970′s, except IRA’s have grown to over $7 trillion dollars and Americans have been schooled through Wall Street advertising, as disclosed in this Public Interest Arbitration Association Report, that they are dealing with fiduciaries that have their best interest before theirs.

The reality is much worse than the Public Interest Arbitration Association Report or President Obama’s report on $17 billion dollars in losses annually due to conflicted advice.  American investors paid Wall Street an “investment advice” fee on a quarterly basis, yet Wall Street had no legal duty to monitor the IRA investments that they recommended, despite the ongoing fee!

The reality is the SEC registered fiduciaries, at Charles Schwab for example, are breaching securities laws, through a “loophole” no American retirement investor is aware of.  The media has not told IRA investors of this loophole, nor has the SEC or FINRA.  Main Street has been duped by Wall Street, for over 40 years, by a very, very clever scheme.

What evidence does one need?  Wall Street will never be a fiduciary.  Is it not unconscionable to set up laws in IRS code to evade existing securities laws?

Wall Street’s chance has come and gone. No more intermediaries.  The retirement investor does have a choice.



It is time for 21st century investing, with the necessary legal protections for America’s IRA’s. Ban mandatory arbitration, and give IRA’s a private right of action.   The photo is from the SEC’s historical files on self-regulation in the securities industry.  Not much has changed since this photo was taken as a recent report reveals.SEC Historical Society Photo on Industry Self-regualtion

Retirement investors must pay attention to this recent study:  Industry-run FINRA Arbritrator Pool Panels Lack Diversity and Fails to Detect and Communicate Biases.

This study underscores how disastrous the situation is for every IRA investor.  There are over $6 trillion dollars in America’s IRA accounts.  Securities laws are breached day in and day out costing retirement investors cumulatively billions through poor performance and high, excessive fees from conflicted intermediaries–investment product salesmen, calling themselves “advisors”, to distribute their investment products.

You can read more at our retirement investor advocate Blog,

An IRA, opened up in a brokerage account, has absolutely no legal recourse.  “You have no right of private action” in your IRA and you are also subject to mandatory arbitration  Both these two legal issues must change and adapt to the reality of today–Americans’ retirement savings are all they have–  they deserve 21st century legal protection to go with their life savings.

Almost every IRA is in a brokerage account and is subject to mandatory arbitration before FINRA, which is Wall Street.  They hear your claim and you can bet the arbitrators will not rule in your favor.

University of Minnesota’s Carlson School of Management Professor Akshay Rao stated in this report:  “It is my opinion the process is illusory and especially harms claimant investors.”

Do not hold your breath for Congress to do anything with Minnesota Congressman Keith Ellison (D-MN) sponsored bill the “Investor Choice Act of 2013″.

What Should a Retirement Investor Do for Protection Against this Unfair Legal System?

You have but one choice if you want the best returns at the lowest cost.  Use Not On My Nickel’s benchmarking platform and new cloud-based interactive tools to go directly to the best performing and least expensive SEC money managers.  You eliminate the salesmen and the brokerage account, the only safe option for your retirement assets in this dangerous retirement investing marketplace.

You will save yourself a minimum of $155,000, according to this study and have piece of mind, through less risk.  (See Part II of this Blog Post.)

Learn How to Go Direct and Eliminate A Brokerage Account, FINRA, for Your IRA

You do not have to open up an IRA with a brokerage firm. You do not have to go through FINRA’s kangaroo court and conflicted intermediaries.

We show you how to protect your life savings from the flawed brokerage account system and their self-regulator, FINRA.  You do have an alternative and we will show you how to do it.

Join our 21st century way of investing.  We do not rely on costly, archaic distribution systems that the retirement industry is determined to push, to support their bottom line, which just reduces your nest egg.

We use technology to enable your retirement assets–to go direct to the best, at the least cost.  You need to decide for yourself with our transparency, tools and platform —on active or passive. Not On My Nickel does not sell any investment product or give investment advice.  We are 100% independent.  Not On My Nickel Seven Criteria

With our tools and benchmarking platform, the Consumer Reports of America’s top money managers (passive or active), you are in charge and empowered to make an informed decision, for the very first time.

Take a look at our seven criteria, to the right, for a money manager to make it to the Not On My Nickel benchmarking platform.  Every Not On My Nickel manager is required to file holdings and performance to the Securities and Exchange Commission, on a regular basis. We urge you to only access money managers that do so.  Your financial advisor does not file their performance with the SEC, on what investments they select for you and neither do new “robo advisors”.  That is too great a risk to take with your life savings to not be able to look at an audited history of a minimum of five year performance, after all fees.

Your nest egg will no longer be in one of the 8000 poorly performing mutual funds.  Low cost does not mean better. Get all the facts before you invest. Poorly performing new robo advisor passive strategies carry great risks, interest rate, currency and political risks —and these firms may be trading your retirement assets in dark pools, that reduces your returns, but gives them trading income on your nickel.

Email us to get on the list to access our platform and cloud based interactive tools first!

You may also want to ask your employer to give you access to our interactive tools and benchmarking educational platform for your 401k.