Fisher Investments Inc., the firm run by Forbes magazine columnist Kenneth Fisher, may have to pay damages of $376,075 for breaching its fiduciary duty to a retired investor.
Sharyn Silverstein, 64, is entitled to out-of-pocket losses she incurred as a result of Fisher Investments liquidating her bond portfolio and investing 100 percent of the proceeds in stocks, according to a copy of the interim arbitration award obtained by Bloomberg News. Silverstein had invested with Fisher in 2007 after multiple calls and visits from a Fisher outside salesman, according to the award document. She had initially contacted the firm after seeing a Fisher advertisement for a complimentary book in USA Today, the document said.
“She called Fisher to get a copy of a free book, with no intention of doing business with Fisher, and ended up being pressured and eventually persuaded, despite significant resistance on her part and that of her husband, to turn over all of her fixed-income securities to Fisher to be invested in equities,” Karen Willcutts, the JAMS arbitrator for the case, wrote in a 25-page interim award dated July 5. JAMS, based in Irvine, California, is a private forum for arbitration and mediation. Some investment adviser firm agreements include a clause that parties must resolve any disputes through private arbitration.
“The decision was completely wrong on the law and the facts. With more than 25,000 clients, losing an arbitration once every seven years is a record far better than any major competitor, which underscores the integrity of our firm,” said David Eckerly, group vice president corporate communications for Woodside, California-based Fisher Investments. Kenneth Fisher is the firm's founder and chief executive officer.
Manages $41 Billion
Fisher Investments manages more than $41 billion for almost 40,000 accounts, primarily for individual investors, according to its most recent regulatory filings available on the U.S. Securities and Exchange Commission website.
Joseph Peiffer, a New Orleans-based attorney with Fishman Haygood Phelps Walmsley Willis & Swanson, LLP, who represents Silverstein, declined to comment.
In conversations with Fisher representatives in 2007 Silverstein made it clear that she and her husband, Seth, intended to take withdrawals from their investments after her husband retired, which he was planning to do at the end of that year, the document said. When her assigned investment counselor with the firm drew up her recommended portfolio, using software called the “Suitability Wizard,” he entered that she had no income needs from her portfolio and that her only objective was to increase the value of her investments at the time of her death. The Silversteins have no children and therefore have no need to leave an inheritance, the award said.
“Fisher failed to make reasonable inquiry into Ms. Silverstein's financial situation, investment experience, and investment objectives or ignored that information. Instead of tailoring its recommendation to Ms. Silverstein's circumstances and needs, as it promised to do and had a duty to do, Fisher simply made the same recommendation to Ms. Silverstein that it makes to the vast majority of its clients: 100 percent equities benchmarked to the MSCI World (MXWO) Index,” Willcutts wrote.
About 80 percent of Fisher's private clients are invested 100 percent in stocks, according to arbitration testimony from Fisher Vice Chairman Andrew Teufel described in the document. Teufel is a member of the five-person Investment Policy Committee at the firm, according to its website.
Sharyn Silverstein was invested with Fisher from about September 2007 through October 2008, during which time her initial investment of $876,357 in bonds lost about $376,075, the award said. Over that period the MSCI World Index lost about 35 percent and the Merrill Lynch U.S. Broad Market Index of bonds returned 2.4 percent, according to Bloomberg data.
After receiving Fisher's investment recommendations the Silversteins called their investment counselor repeatedly, expressing concern over the 100 percent stocks allocation and asking that the firm hold off on managing their account, the document said. Following one of these calls the salesman they had worked with called Sharyn Silverstein, “and expressed his unhappiness with the Silversteins' desire to quit and told her that she would have to pay a fee if she quit, so she agreed to allow Fisher to resume managing her account,” the award said.
In July 2008, after again telling their investment counselor about their concerns over not holding any bonds, the counselor “informed them that Fisher's recommendation was still 100 percent equities, assured them that Fisher had a good track record of predicting the market and could take defensive measures to protect the Silversteins' assets if necessary, and also said that they could mandate something different,” Willcutts wrote.
In addition to the $376,075 in out-of-pocket damages, Silverstein may be awarded the costs of her attorney's fees, other expenses and interest, according to the interim award for the case, which was arbitrated in Dallas. JAMS awards are generally not made public unless both parties agree to waive confidentiality, according to JAMS spokeswoman Victoria Walsh.