JPMorgan Chase Brokers Say the Financial Firm Prioritized Sales Over Investors’ Needs

According to a number of its current and former brokers, as JPMorgan Chase (JPM) was growing into one of the largest mutual fund managers in the country, it was placing a greater emphasis on sales than it was on the needs of its clients. These financial advisors say that JPMorgan encouraged them on occasion to promote its products over competitors even when what the others were offering was less expensive or had been performing better.

The New York Times, which wrote a news report about the brokers’ claims, says that if these allegations are true then the benefit to JPMorgan is obvious. The more money investors put into the investment bank’s funds the greater the fees it collects for managing the funds. One ex-JPMorgan employee, Geoffrey Tomas said he frequently would sell JPMorgan funds with poor performance records for the sole purpose of making the financial firm more money. Thomas now works with Urso Investment Management.

JPMorgan is one of a number of investment banks that turned to retail investors in the wake of the economic crisis. UBS (UBS) and Morgan Stanley (MS) have also attempted to target mom and pop investors. The Times says that JPMorgan’s approach is to concentrate on selling funds of its own creation. This is a practice that many companies, who don’t want to be thought of as having conflicts of interest, have decided to abandon.

Earlier this year, arbitrators ordered JPMorgan to pay American Century Investments $373 million to settle allegations that the investment bank pushed its own funds to the Kansas-based fund management company’s detriment. JPMorgan was accused of breaching the 2003 contract under which it had bought American Century’s Retirement Plan Services. According to the ruling, JPMorgan had promise that it would promote American Century’s products when it made the purchase but instead, its executive Jes Staley, and others, did not keep up their end of the bargain and promoted JPMorgan’s products instead.

JPMorgan has defended its strategy of promoting its own products by saying that customers want “in-house expertise.” One of its core products is the Chase Strategic Portfolio. Combining about 15 mutual funds, some JPMorgan-developed, the portfolio has about $20 billion in assets after just four years. Meantime, the investment bank levies a yearly fee of up to 1.6% of assets in the portfolio and makes a fee on the underlying JPMorgan funds. Seeing as these fees are profit, there is concern by some that the portfolio might be recommended by brokers for the firm’s financial gain rather than the clients’ best interests and needs.

In the US, our securities fraud attorneys represent institutional and individual investors that wish to recover losses from negligent investment firms, brokers, and investment advisers. Contact Shepherd Smith Edwards and Kantas, LTD, LLP today.

Former Brokers Say JPMorgan Favored Selling Bank’s Own Funds Over Others, NY Times, July 12, 2012

JPMorgan Loses $373 Million Arbitration to American Century, Bloomberg/Businessweek, March 23, 2012