Dec. 26, 2022
December 26, 2022 Please vote in favor of advancing this proposal. My comments are below. This Due Diligence will show Fiduciary VS Non-Fiduciary and expand on that. I believe that if you piece it all together, it could perhaps show that these large Investment Firms are breaking their Fiduciary duty to their managed accounts Which is a major No No and what could actually harm these businesses and have massive ramifications. This is actually much much larger than GME and APES need clarification. Understand that these large firms have two types of clients They have Fiduciary and Non-Fiduciary clients. You can be both and if you are, you would have two accounts. A managed account (Fiduciary) and self-directed (Brokerage Account). Another way to differentiate is Investment Advisor vs Broker Dealer. Have you ever heard of managed accounts?... These are the Fiduciary accounts. This is when you pay a fee to have a firm and advisor manage the account. When you open an account to purchase GME at a broker, this is a brokerage account and no Fiduciary standard is required. The only way that a firm has a Fiduciary Duty to you is if you sit down with an Agent and sign paperwork, that you will pay a fee for that service. Let's take a look at some examples of Fiduciary https://www.forbes.com/advisor/investing/financial-advisor/what-is-fiduciary-duty/ https://www.investopedia.com/terms/f/fiduciary.asp https://www.fidelity.com/insights/investing-ideas/glossary-fiduciary-rule#:text=A ficudiary is someone tasked,issued by by the U.S. government Morgan Stanley wrote an article that goes over this https://www.morganstanley.com/wealth/ourapproach/pdfs/understandingyourrelationship.pdf Let's take a step back. These large firms are usually registered as both a broker-dealer and as an investment advisor. I believe that the Broker/Dealer side of the business (self directed brokerage) may be taking on excessive risk on the PFOF side of things by aggressively lending shares to other institutions and engaging in a massive short selling business. When these large brokers lend their Broker/Dealer Self Directed shares they may now be breaking their Fiduciary Duty to their clients. Not legally anyway but when you piece it all together. Let me continue To revise When acting as a Fiduciary the Investment Advisor must Act in in the best interest of the client Put the client ahead of the firm's interests The SEC has information on this also. https://sec.gov/rules/interp/2019/ia-5248.pdf The SEC says that Under its duty of loyalty, an investment adviser must eliminate or make full and fair disclosure of all conflicts of interest which might inclien an investment adviser. An argument here is that Investment Advisors are misleading clients on the risk their Broker Dealer side of the business is dealing with. Let's look at Charles Schwab for example You have Charles Schwab the broker dealer, and Charles Schswab Investment Management. Charles Schwab the broker dealer is where APES and self directed clients buy stocks and funds on their own. Charles Schwab Investment Management is the Investment Advisor, which acts as the Fiduciary. Here is where it gets hairy. Charles Schwab Investment Management is a subsidiary of Charles Schwab Corporation. https://schwabassetmanagement.com The above disclosure states that Charles Schwab Investment Management is separate, but a subsidiary of the Charles Schwab Corporation. Charles Schwab Owns Charles Schwab Investment Management, but does not warn their clients on the risk that they are taking on the BD side. Perhaps years ago there was no risk, but after the PFOF really took off, this changed and no advisory updates have been made. I believe if you piece it all together that these Investment Advisors may be breaking their Fiduciary duty to their clients. If GME does MOASS and Schwab fails then their Advisory clients may be harmed and I believe this risk is being ignored by The Charles Schwab Corporation. This is the same for many (not all) of the major firms out there. What happens when you break this fiduciary duty? https://preview.redd.it/5n4luin1dvj91.png?width=624format=pngauto=webps=f6207f335dad5d3923ba20698221ebb13018345c And... https://preview.redd.it/tfe39us2dvj91.png?width=624format=pngauto=webps=eb46b525f63e6247569c239b298afadd8b6d8e42 Breaking Fiduciary duty is heavy and has serious consequences I believe this is what really scares these corporations. Almost every major firm on Wall St runs a dual BD and Investment Advisor Business. If MOASS destroys the market due to the PFOF business that the BD side engaged in = you could argue that the Investment Advisor broke their Fiduciary Duty by not disclosing this risk on the other side of the corporation. Remember https://preview.redd.it/km70bfs5dvj91.png?width=615format=pngauto=webps=e1b3ee52397fc6b823644de108a20bb6fb9d8f7f From the SEC Under its duty of loyalty, an investment adviser must eliminate or make full and fair disclosure of all conflicts of interest which might incline an investment adviser. Below is a chart that shows the BD and Investment Advisor business these corporations run. Corporation: Charles Schwab Broker Dealer: Charles Schwab Co Investment Advisor: Charles Schwab Investment Management Corporation: TD Ameritrade Broker Dealer: TD Ameritrade Investment Advisor: TD Ameritrade Investment Management Other Affiliations/Connections: Also owned by Schwab Corporation: J.P Morgan Broker Dealer: J.P Morgan Securities Investment Advisor: J.P Morgan Asset Management Corporation: Morgan Stanley Broker Dealer: Morgan Stanley Co Investment Advisor: Morgan Stanley Wealth Management Corporation: E Trade Broker Dealer: E Trade Securities LLC Investment Advisor: E Trade Capital Management Corporation: Bank of America Broker Dealer: Merryl Edge Investment Advisor: Merrill Lynch Wealth Management Corporation: Fidelity Broker Dealer: Fidelity Investments Investment Advisor: Fidelity Investment Management and Research Corporation: Wells Fargo Broker Dealer: Wells Trade Investment Advisor: Wells Fargo Advisors The list is much bigger than this but this is an example of how these firms run both a Broker Dealer and Investment Advisor business. TLDR: Your broker does not have a fiduciary duty to you. If you are a fee based managed client they do. The bigger story here is that Broker/Dealers have engaged in a massive PFOF and lending business that is detrimental to the Assets on the Investment Advisor side and the Advisors are failing to eliminate or fully disclose this risk. GME is a drop in the bucket compared to the assets at risk in the managed accounts, and I believe this is what really scares these firms. The PFOF business that they engage in feeds clients BDs assets into the PFOF Algorithm and this has not changed since day 1. Schwabs PFOF information can be found here: https://www.schwab.com/legal/order-routing-1 Charles Schwab's first PFOF report is below https://preview.redd.it/d8a7s0bxdvj91.png?width=624format=pngauto=webps=a87fd8b72a15e5f55d2e84c1013d464d81845bb7 The left column is the major market makers who facilitate this program. As you can see Ken Griffin Financial Terrorist who lied to congress is at the top with 30% of all trades. Virtu and G1 (Susquenhanna) make up the lion share. These three major market makers also run Hedge Funds wrapped up as Investment Advisors and you could argue they are breaking their duty to their clients also. Fast forward to Schwab's latest PFOF report https://preview.redd.it/93wme6izdvj91.png?width=624format=pngauto=webps=f61223d755ce3170505fc126359e210a7ec89dbe The numbers are practically the same this means two things The PFOF algo has not stopped, changed or been modified since it blew up the first time The idiosyncratic risk still exists and is being caused by the Broker Dealers engaging in this business The first Scwab report was created in January of 2020 DFV discovered that GME was mispriced shortly after this the idiosyncratic risk has never gone away and the Investment Advisors are failing to eliminate or fully disclose this risk to their clients. TLDR: If you bought GME thru a broker they most likely have no fiduciary duty to you. However, the PFOF business that the BD engage in poses idiosyncratic risk that has not been eliminated or fully disclosed to their Advisory clients and this is what really scares these corporations.