The Great American Casino is growing, and it’s nestled nicely into the ribs of the financial advice industry.
We all know casinos can be a lot of fun, but they’re also places where we can lose all our money. Right now, instead of rejecting the casino, the financial advice industry is embracing it.
Indeed, as an industry, we’re becoming casino-fied. And the risk is metastasizing.
How did we get here? The Great American Casino – or GAC, as we call it at InvestmentNews – has many strongholds.
Our kids’ phones, perhaps the most dangerous. Electronic currencies that promise immediate riches. Deregulation, which ignores real world risks of Mom and Pop investors putting retirement money into land deals or private loans backed by software companies.
The GAC has the advice industry and its roughly 325,000 financial advisors by the dice and is putting on the squeeze. After all, there’s a lot of money to be made.
The Trump administration is pushing its Department of Labor to give 401(k) plan administrators the ability to sell high-risk, high-cost alternative investments like nontraded private credit funds. Many of those funds are in hot water this year and are currently facing demands from customers to buy back shares that the funds can’t – or won’t - fulfill.
And then there’s the crypto for everyone, all the time, mindset. The Charles Schwab Corp., a true industry leader, said this week it’s starting 24 hour trading of “select cryptocurrency futures,” including Bitcoin, Ether, Solana and Ripple products on its thinkorswim trading platforms.
Such moves endanger the long-term, fiscal health America’s population of savers and investors.
“As a country, we’re getting hooked on gambling and weaning ourselves off investing,” Sander Ressler, managing director of Essential Edge Compliance Outsourcing Services, told InvestmentNews. “The industry is looking at products with short-term payoffs – take crypto - that lack transparency, but it’s no longer doing real due diligence. Investing now is like flipping coins, where the house has the edge.”
“Wall Street is building dynamite and charging clients a fortune when they buy it,” Ressler said.
It wouldn’t be a casino without some criminality. President Donald J. Trump legitimized the GAC last year when he commuted the sentence – a get out of jail card – of convicted felon and former alternative investment industry executive David Gentile.
The Trump administration’s reasoning for dispensing with a Brooklyn federal jury’s 2024 conviction of Gentile on fraud charges and granting him a commutation?
Gentile’s company, GPB Capital Holdings, had previously disclosed to investors and financial advisors the possibility of using investor capital to pay some distributions – think dividends – to clients rather than funding them from current operations.
The flaws with the Trump administration’s reasoning in this case are profound: alternative investments like GPB’s high-cost, high-risk private placements routinely warn investors their capital may be used to cover distributions. It’s part of boiler plate disclosures in all such investments.
“The industry is trying to cater to younger investors,” said one senior industry executive who spoke privately to InvestmentNews about the matter. “Investing is supposed to be for the long haul, but now the focus us trying to find large gains in a short period of time.”
And thanks to the GAC infecting mobile phones, a lot of kids don’t know the difference between gambling and investing. A series of prop bets on game one this week of the NBA finals is an investment to some people my 19-year old son’s age, not a gamble.
Just a decade ago, the financial advice industry did not want to have executives with the mentality of teens running the show.
Still reeling from the credit crisis of 2008 and mindful of the dot.com bubble burst of 2000, the industry in 2016 remained fearful that the vast majority of Americans regarded any broker or financial advisor as the next Bernie Madoff.
Since then, Wall Street has forgotten its shame and embarrassment. And many in the industry have apparently forgotten their ethics.
After all, the GAC is now in charge and has its expectations.
Crypto for everyone? Expensive alternative investments that increase the risk of retirement accounts blowing up? A criminal conviction?
Have at it, advisors.
Forget your fears. Sell the dynamite. And enjoy the casino.
Franklin Resources' fixed-income unit settles SEC charges and closes firm-level DOJ and regulatory probes, but Kenneth Leech's criminal case continues.
Beyond rising client demand, firms and advisors with a focus on delivering tax alpha are in a better position to compete and thrive in the face of growing industry challenges.
Brokerages roll out real-time risk frameworks as $25,000 equity barrier falls after 25 years.
Some advisors are focused on moving assets. The families who trust us are worried about something far more important
While most women investors trust their advisors, new research points to “mansplaining” and other barriers that could undermine client relationships.
As $84 trillion prepares to change hands, advisors who treat estate planning as peripheral are quietly building a sieve, not a book.
In volatile markets, the advisors who win aren't the ones with the best calls - they're the ones whose clients stay the course.
