BOARD CERTIFICATION EXAM STUDY GUIDES Lower Extremity Trauma
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Posted on November 22, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
By Dr. David Edward Marcinko MBA MEd
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The Financial Industry Regulatory Authority (FINRA) is a cornerstone of the U.S. financial system, serving as a self-regulatory organization that oversees brokerage firms and their registered representatives. Established in 2007 through the consolidation of the National Association of Securities Dealers (NASD) and the regulatory arm of the New York Stock Exchange, FINRA plays a critical role in maintaining market integrity, protecting investors, and ensuring that the securities industry operates fairly and transparently.
Origins and Mission
FINRA’s creation was driven by the need for a unified regulatory body that could streamline oversight of broker-dealers. Its mission is straightforward yet vital: to safeguard investors and promote market integrity. Unlike government agencies such as the Securities and Exchange Commission (SEC), FINRA is a non-governmental organization, but it operates under the SEC’s supervision. This unique structure allows FINRA to act with agility while still being accountable to federal oversight.
Core Responsibilities
FINRA’s responsibilities are broad and multifaceted.
Licensing and Registration: FINRA ensures that brokers and brokerage firms meet professional standards before they can operate. This includes administering qualification exams such as the Series 7 and Series 63.
Rulemaking and Enforcement: FINRA develops rules that govern broker-dealer conduct and enforces them through disciplinary actions when violations occur.
Market Surveillance: FINRA monitors trading activity across U.S. markets to detect fraud, manipulation, or other irregularities.
Investor Education: Through initiatives like BrokerCheck, FINRA provides investors with tools to research brokers and firms, empowering them to make informed decisions.
Each of these functions contributes to a safer and more transparent marketplace.
Protecting Investors
Investor protection lies at the heart of FINRA’s mission. By enforcing ethical standards and monitoring trading practices, FINRA reduces the risk of misconduct such as insider trading, excessive risk-taking, or misleading investment advice. Its arbitration and mediation services also provide investors with avenues to resolve disputes with brokers outside of lengthy court proceedings. This combination of proactive regulation and accessible dispute resolution strengthens public trust in financial markets.
Challenges and Criticisms
Like any regulatory body, FINRA faces challenges. Critics argue that as a self-regulatory organization, it may be too close to the industry it oversees, raising concerns about conflicts of interest. Others question whether its penalties are sufficient to deter misconduct. Additionally, the rapid evolution of financial technology, cryptocurrency markets, and complex trading algorithms presents new regulatory hurdles. FINRA must continually adapt its rules and surveillance systems to keep pace with innovation.
Impact on the Financial System
Despite these challenges, FINRA’s impact is undeniable. By maintaining standards of conduct and transparency, it helps ensure that capital markets remain efficient and trustworthy. Investors, from individuals saving for retirement to institutions managing billions, rely on FINRA’s oversight to protect their interests. Broker-dealers, meanwhile, benefit from clear rules that create a level playing field and reduce systemic risk.
Conclusion
In summary, FINRA is an essential pillar of the U.S. financial regulatory framework. Its blend of licensing, rulemaking, enforcement, and investor education fosters confidence in the securities industry. While it must continue to evolve in response to technological and market changes, its mission remains constant: protecting investors and promoting integrity. Without FINRA’s presence, the risk of misconduct and instability in financial markets would be far greater. As the financial landscape grows more complex, FINRA’s role will only become more critical in ensuring that markets remain fair, transparent, and resilient.
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR-http://www.MarcinkoAssociates.com
Posted on November 16, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
By Dr. David Edward Marcinko MBA MEd
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American Depository Receipts Defined
In the modern era of globalization, financial instruments that connect investors across borders have become indispensable. Among these, American Depository Receipts (ADRs) stand out as a powerful mechanism that allows U.S. investors to participate in foreign equity markets without the complexities of international trading. ADRs not only simplify access to global companies but also enhance the ability of foreign corporations to raise capital in the United States. This essay explores the origins, structure, regulatory frameworks, benefits, risks, and real-world examples of ADRs, highlighting their role in the integration of global finance.
Historical Development
The concept of ADRs emerged in 1927 when J.P. Morgan introduced the first ADR for the British retailer Selfridges. At the time, American investors faced significant hurdles in purchasing foreign shares, including currency conversion, unfamiliar trading practices, and regulatory differences. ADRs solved these problems by creating a U.S.-based certificate that represented ownership in foreign shares, denominated in dollars, and traded on American exchanges.
Over the decades, ADRs expanded rapidly, especially during the post-World War II era when globalization accelerated. By the late 20th century, ADRs had become a mainstream tool for accessing international equities, with companies from Europe, Asia, and Latin America increasingly using them to tap into U.S. capital markets.
Structure and Mechanics
An ADR is issued by a U.S. depositary bank, which holds the underlying shares of a foreign company in custody. Each ADR corresponds to a specific number of shares—sometimes one, sometimes multiple, or even a fraction. Investors buy and sell ADRs in U.S. dollars, and dividends are paid in dollars as well, eliminating the need for currency conversion.
Key structural features include:
Depositary Banks: Institutions such as J.P. Morgan, Citibank, and Bank of New York Mellon act as custodians and issuers of ADRs.
ADR Ratios: The number of foreign shares represented by one ADR can vary, allowing flexibility in pricing.
Trading Platforms: ADRs can be listed on major exchanges like the NYSE or NASDAQ, or traded over-the-counter.
Regulatory Framework
ADRs are subject to U.S. securities regulations, which vary depending on the level of ADR issued:
Level I ADRs: Traded over-the-counter, requiring minimal disclosure. They are primarily used for visibility rather than fundraising.
Level II ADRs: Listed on U.S. exchanges, requiring compliance with SEC reporting standards, including reconciliation of financial statements to U.S. GAAP or IFRS.
Level III ADRs: Allow foreign companies to raise capital directly in U.S. markets through public offerings. These require the highest level of regulatory compliance, including registration with the SEC and adherence to corporate governance standards.
This tiered system ensures that investors receive appropriate levels of transparency while giving foreign companies flexibility in their approach to U.S. markets.
Benefits for Investors
ADRs offer numerous advantages to American investors:
Convenience: Investors can buy shares in foreign companies without dealing with foreign exchanges or currencies.
Diversification: ADRs provide access to global firms across industries, enhancing portfolio diversification.
Transparency: ADRs listed on U.S. exchanges must comply with SEC regulations, ensuring reliable financial reporting.
Liquidity: ADRs trade on familiar platforms, making them easily accessible to retail and institutional investors alike.
Benefits for Companies
Foreign corporations also benefit significantly from ADRs:
Access to Capital: ADRs open the door to the world’s largest pool of investors.
Global Visibility: Listing in the U.S. enhances reputation and credibility.
Improved Liquidity: Shares become more widely traded, increasing market efficiency.
Investor Base Diversification: Companies can attract both domestic and international investors, reducing reliance on local markets.
Risks and Challenges
Despite their advantages, ADRs carry certain risks:
Currency Risk: ADR values are tied to foreign shares denominated in local currencies, making them vulnerable to exchange rate fluctuations.
Political and Economic Risk: Instability in the issuing company’s home country can affect performance.
Taxation: Dividends may be subject to foreign withholding taxes before conversion to U.S. dollars.
Regulatory Differences: Even with SEC oversight, differences in accounting standards and corporate governance can pose challenges.
Case Studies
1. Alibaba Group (China) Alibaba’s ADRs, listed on the NYSE in 2014, marked one of the largest IPOs in history, raising $25 billion. This demonstrated the power of ADRs to connect Chinese companies with American investors, despite regulatory complexities between the two countries.
2. Toyota Motor Corporation (Japan) Toyota’s ADRs have long provided U.S. investors with access to one of the world’s largest automakers. By listing ADRs, Toyota expanded its investor base and strengthened its global presence.
3. Royal Dutch Shell (Netherlands/UK) Shell’s ADRs illustrate how multinational corporations use ADRs to maintain visibility in U.S. markets while managing complex cross-border structures.
The Role of ADRs in Global Finance
ADRs embody the globalization of capital markets. They facilitate cross-border investment, enhance market efficiency, and foster economic integration. For investors, ADRs represent a gateway to international diversification. For companies, they provide access to the deepest capital markets in the world.
Conclusion
American Depositary Receipts are more than just financial instruments; they are symbols of global interconnectedness. By bridging the gap between U.S. investors and foreign companies, ADRs have reshaped the landscape of international finance. They balance convenience with exposure to global risks, offering both opportunities and challenges. As globalization continues to evolve, ADRs will remain a vital tool for investors and corporations alike, reinforcing their role as a cornerstone of modern capital markets.
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR-http://www.MarcinkoAssociates.com
High-frequency trading (HFT) is a form of algorithmic trading that uses powerful computers and complex programs to execute thousands of trades in fractions of a second. It has transformed modern financial markets by increasing speed, liquidity, and efficiency—but also raised concerns about fairness and stability.
High-frequency trading emerged in the early 2000s as technological advances allowed financial firms to process market data and execute trades faster than ever before. HFT firms use sophisticated algorithms to analyze multiple markets and identify short-term opportunities. These trades are often held for mere seconds or milliseconds, and profits are made by exploiting tiny price discrepancies across assets or exchanges.
One of the defining features of HFT is its reliance on speed. Firms invest heavily in infrastructure—such as co-location services near exchange servers and fiber-optic cables—to gain microsecond advantages over competitors. This race for speed has led to a technological arms race, where milliseconds can mean millions in profit.
HFT contributes significantly to market liquidity, meaning it helps ensure that buyers and sellers can transact quickly at stable prices. By constantly placing and updating orders, HFT firms narrow bid-ask spreads and reduce transaction costs for other market participants. This has made markets more efficient and accessible, especially for retail investors.
However, HFT is not without controversy. Critics argue that it creates an uneven playing field, where firms with access to advanced technology and capital can dominate markets. Concerns about market manipulation—such as quote stuffing (flooding the market with orders to slow competitors) or spoofing (placing fake orders to move prices)—have led to increased regulatory scrutiny.
The 2010 Flash Crash is often cited as a cautionary example of HFT’s potential risks. During this event, the Dow Jones Industrial Average plunged nearly 1,000 points in minutes before rebounding. Investigations revealed that automated trading systems, including HFT algorithms, contributed to the sudden loss of liquidity and extreme volatility.
Regulators have responded by implementing safeguards such as circuit breakers, which pause trading during extreme price movements, and requiring firms to register and disclose their trading strategies. The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) continue to monitor HFT’s impact on market integrity.
Despite its challenges, HFT remains a dominant force in global finance. It accounts for a significant portion of trading volume in equities, futures, and foreign exchange markets. Many institutional investors rely on HFT strategies to manage large portfolios and hedge risks.
In conclusion, high-frequency trading represents both the promise and peril of technological innovation in finance. While it enhances market efficiency and liquidity, it also introduces new risks and ethical dilemmas.
As markets evolve, balancing innovation with fairness and stability will be essential to ensuring that HFT serves the broader interests of investors and the economy.
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com
So, advice is subject to a fiduciary duty, while product sales (brokerage) activity is not. The ratio of fiduciary advice to brokerage sales is about 1:99. So, what does that tell you?
A Contentious and Complicated Issue
This issue is so contentious and complicated today that lawyers are needed to define each and every term, engagement, transaction, brokerage or advisory contract, etc. It is far too amazingly contorted and complicated for most; including me; and we have even discussed the industry machinations and political double-talk on this ME-P previously; from some vary sharp industry experts, too.
The “work-around” for these rules is industry “dual-registration”. Simply put, just get licensed to do both; as I did. Charge a commission when selling stuff and charge a fee for advice. And ideally, do both at the same time; while getting paid for both sides.
As a naïve luddite, I learned this little truism in financial planning school decades ago, and as a doctor and fiduciary for my patients at all times, almost vomited.
Of course, there were more sophisticated students in our classes who regurgitated the standard industry opinion: “We’ll give the client a financial plan for free IF we can sell commissioned products.”
Ideally this meant a fat and fully commissioned wrap account, whole-life insurance policy, LTCI policy; etc. Or, sell products and collect fat ongoing, and often unrecognizable AUM fees [fee-only], too!
From the stock broker-advisor’s POV, it was “Heads I win – tails you loose” for the client. Now, you know why I am a former or reformed certified financial planner.
The Physics Split
Know that as a pre-medical college student years earlier, I leaned about the Werner Heisenberg Uncertainty Principle, in physics class.
Of course, true Advice – is not Sales … and Sales is not Advice. Both should never be; simultaneously. So, let’s ditch dual registration and decide which to pursue … and then proceed accordingly. Both sales and advice have risks and benefits to client and producer; both have advantages and disadvantages to both; as well.
WHY? Just like the Werner Heisenberg Uncertainty Principle; it shouldn’t [shan’t] be both; at once.
NOTE: In quantum mechanics, the Heisenberg uncertainty principle is any of a variety of mathematical inequalities asserting a fundamental limit to the precision with which certain pairs of physical properties of a particle, known as complementary variables, such as position x and momentum p, can be known simultaneously.
So, in physics, I can tell you where you are -OR- how fast you are going; but not both. Thus, if it is product sales; it is not advice.
Today, since “dual registration” is still allowed, my suggestion to clients is to seek a fiduciary in all matters 24/7/354; get it in writing, and try to avoid arbitration and “best interest” or BICE clauses! Run from [fee-based and fee-only] AUM fees, too.
PS: I am not against Series #7 representatives and product sales. Salesmen/women often provide a valuable service and should be appropriately compensated. I only object when fees, costs, charges and commissions are duplicative, excessive and/or not fully disclosed to the client. Since excessive is an arbitrary term; full disclosure is the key ingredient.
Assessment
So – How am I wrong, mistaken and/or what did I miss? Do tell! Should We – Can We – Ditch Dual Registration [DDR]?
Oh! In the future, I also hope that State fiduciary standards will potentially cover both non-ERISA and ERISA situations, and employee plan participants will have access to full discovery rights, the one thing the industry fears most.
But, that’s a discussion for another day and time.
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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. https://medicalexecutivepost.com/dr-david-marcinkos-bookings/
Why It Is Difficult to Be a Part-Time Financial Planner Today
In theory, part-time financial planning offers flexibility and work-life balance, making it an attractive option for professionals seeking reduced hours. However, in practice, the role of a financial planner has evolved into a demanding, full-time commitment. The complexity of financial markets, client expectations, regulatory requirements, and technological advancements make part-time financial planning increasingly difficult to sustain.
One of the primary challenges is client relationship management. Financial planning is deeply personal and trust-based. Clients expect consistent communication, timely updates, and proactive advice. A part-time planner may struggle to maintain the same level of responsiveness as full-time counterparts, especially during volatile market conditions or life-changing events like retirement, divorce, or inheritance. Delayed responses or limited availability can erode client confidence and damage long-term relationships.
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Another obstacle is the rapid pace of financial change. Tax laws, investment products, insurance regulations, and retirement planning strategies are constantly evolving. Staying current requires ongoing education, certifications, and industry engagement. For part-time planners, keeping up with these changes while managing clients and administrative tasks can be overwhelming. Falling behind risks offering outdated or suboptimal advice, which could lead to compliance issues or client dissatisfaction.
Regulatory compliance adds another layer of complexity. Financial planners must adhere to strict standards set by organizations like FINRA, the SEC, and state regulators. These include documentation, disclosures, fiduciary responsibilities, and continuing education. Compliance is non-negotiable and time-consuming, regardless of hours worked. Part-time planners face the same scrutiny and liability as full-time professionals, but with fewer hours to manage the workload.
Technology, while a powerful tool, also presents challenges. Clients increasingly expect digital access to their portfolios, real-time updates, and virtual meetings. Managing these platforms requires technical proficiency and regular maintenance. Part-time planners may find it difficult to keep systems updated, troubleshoot issues, or provide tech support, especially if they lack dedicated staff.
Business development is another hurdle. Building and maintaining a client base requires networking, marketing, and referrals. Part-time planners often have limited time to attend events, follow up with leads, or cultivate relationships. This can hinder growth and make it difficult to compete with full-time advisors who are more visible and accessible.
Finally, there’s the issue of income and scalability. Many financial planners earn through commissions, assets under management (AUM), or fee-based models. Part-time work often means fewer clients and lower revenue, which can make it hard to justify the costs of licensing, insurance, software, and office space. Without scale, profitability becomes a challenge.
In conclusion, while the idea of part-time financial planning may seem appealing, the realities of the profession make it difficult to execute effectively. The demands of client care, compliance, education, and business development require consistent attention and availability. Unless the industry adapts to support flexible models, part-time financial planners will continue to face significant barriers to success.
SPEAKING: ME-P Editor Dr. David Edward Marcinko MBA MEd will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR-http://www.MarcinkoAssociates.com
Buying or selling stocks requires access to one of the major exchanges, such as the New York Stock Exchange (NYSE) or the National Association of Securities Dealers Automated Quotations (NASDAQ). To trade on these exchanges, you must be a member of the exchange or belong to a member firm. Member firms and many individuals who work for them are licensed as brokers or broker-dealers by the Financial Industry Regulatory Authority (FINRA).
And so, a stockbroker executes orders in the market on behalf of clients. A stockbroker may also be known as a registered representative or investment advisor. Most stockbrokers work for a brokerage firm and handle transactions for several individual and institutional customers. Stockbrokers are often paid on commission, although compensation methods vary by employer.
Remember: SBs work for their firm and not the client. Stock brokers are not fiduciaries.
The Medical Executive-Post is a news and information aggregator and social media professional network for medical and financial service professionals.
Feel free to submit education content to the site as well as links, text posts, images, opinions and videos which are then voted up or down by other members. Comments and dialog are especially welcomed.
Daily posts are organized by subject. ME-P administrators moderate the activity. Moderation may also conducted by community-specific moderators who are unpaid volunteers.
Artificial Intelligence and Investing: A Transformative Partnership
Artificial Intelligence (AI) is revolutionizing the world of investing, reshaping how decisions are made, risks are assessed, and portfolios are managed. As financial markets grow increasingly complex and data-driven, AI offers powerful tools to navigate this landscape with greater precision, speed, and insight.
At its core, AI refers to systems that can perform tasks typically requiring human intelligence—such as learning, reasoning, and problem-solving. In investing, this translates into algorithms that can analyze vast amounts of financial data, detect patterns, and make predictions with remarkable accuracy. Machine learning, a subset of AI, enables these systems to improve over time by learning from new data, making them especially valuable in dynamic markets.
One of the most significant applications of AI in investing is algorithmic trading. These systems can execute trades at lightning speed, responding to market fluctuations in milliseconds. By analyzing historical data and real-time market conditions, AI-driven trading platforms can identify optimal entry and exit points, often outperforming human traders. High-frequency trading firms have long relied on such technologies to gain competitive advantages.
AI also enhances portfolio management through robo-advisors—digital platforms that use algorithms to provide personalized investment advice. These tools assess an investor’s goals, risk tolerance, and time horizon, then construct and manage a diversified portfolio accordingly. Robo-advisors democratize access to financial planning, offering low-cost, automated solutions to individuals who might not afford traditional advisory services.
Risk assessment is another area where AI shines. By processing alternative data sources—such as social media sentiment, news articles, and satellite imagery—AI can uncover hidden risks and opportunities. For instance, a sudden spike in negative sentiment around a company on Twitter might signal reputational issues, prompting investors to reevaluate their positions. AI models can also forecast macroeconomic trends, helping investors anticipate shifts in interest rates, inflation, or geopolitical events.
Moreover, AI is transforming fundamental analysis. Natural language processing (NLP) allows machines to read and interpret earnings reports, SEC filings, and analyst commentary. This enables investors to extract insights from unstructured data that would be time-consuming to analyze manually. AI can even detect subtle linguistic cues that may indicate a company’s future performance or management’s confidence.
Despite its advantages, AI in investing is not without challenges. Models can be opaque, making it difficult to understand how decisions are made—a phenomenon known as the “black box” problem. There’s also the risk of overfitting, where algorithms perform well on historical data but fail in real-world scenarios. Ethical concerns, such as bias in data and the potential for market manipulation, must also be addressed.
In conclusion, AI is reshaping the investing landscape, offering tools that enhance efficiency, accuracy, and accessibility. While it’s not a panacea, its integration into financial markets marks a profound shift in how capital is allocated and wealth is managed. As technology continues to evolve, investors who embrace AI will be better positioned to thrive in an increasingly data-driven world.
The Series 7 exam — the General Securities Representative Qualification Examination (GS) — assesses the competency of an entry-level registered representative to perform their job as a general securities representative.
The exam measures the degree to which each candidate possesses the knowledge needed to perform the critical functions of a general securities representative, including sales of corporate securities, municipal securities, investment company securities, variable annuities, direct participation programs, options and government securities.
When owners of a security spread false information to pump up the price of the security and subsequently sell off their shares, making a profit—the “dump.”
Refer to attempts by investors to move the price of a stock opportunistically by selling large numbers of shares short. The investors pocket the difference between the initial price and the new, lower price after this maneuver. This technique is illegal under SEC rules, which stipulate that every short sale must be on an uptick. For more information on this complex tactic, read on in this piece from the Wharton School of Business.
Wash Trading
Involves the simultaneous or near-simultaneous sale and repurchase of the same security for the purpose of generating activity and increasing the price.
When fraudsters manipulate the market through matched orders, they enter trades to buy or sell securities with the knowledge that a matching order on the opposite side has been or will be entered. During his tenure at the Commission, our partner Jordan Thomas was involved in a case where the SEC won summary judgement and obtained settlements with an astonishing 16 defendants who engaged in matched trades, among other illicit tactics.
Painting the Tape
Painting the tape refers to placing successive orders in small amounts at increasing or decreasing prices.
Spoofing & Layering
High frequency traders are known to use the tactics of Spoofing & Layering to manipulate share prices. Spoofing is the placing of a bid or offer with the intent to cancel before execution. Layering is a form of spoofing in which the trader places multiple orders on one side of the book, in order to create a false impression of heavy buying or selling.
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR-http://www.MarcinkoAssociates.com
THE ADDICTIVE INVESTING / TRADING PERSONALITY OF DOCTORS
Dr. Donald J. Mandell, a pediatrician, always needs to leave the office fifteen minutes ahead of schedule. The reason is because it takes that long to make the necessary number of trips to ensure the front door is truly locked.
Dr. Kamela A. Shaw, a general surgeon, is constantly rushing to the bath room so that she can wash her hands. As far as she is concerned, it is not possible to get one’s hands clean enough considering the COVID pandemic or recent influenza outbreak.
Although the behaviors displayed by these two doctors are different, they are consistent in that each, to some degree, display behavior that might be called an obsessive-compulsive disorder [OCD].
An obsession is a persistent, recurring preoccupation with an idea or thought. A compulsion is an impulse that is experienced as irresistible.
Obsessive-compulsive individuals feel compelled to think thoughts that they say they do not want to think or to carry out actions that they say are against their will. These individuals usually realize that their behavior is irrational, but it is beyond their control. In general, these individuals are preoccupied with orderliness, perfectionism, and mental and interpersonal control, at the expense of flexibility, openness, and efficiency. Specifically, behaviors such as the following may be seen:
Preoccupation with details.
Perfectionism that interferes with task completion.
Excessive devotion to work and office productivity.
Scrupulous and inflexible about morality (not accounted for by cultural or religious identification);
Inability to discard worn-out or worthless objects without sentimental value;
Reluctance to delegate tasks or to work with others.
Adopts a miserly spending style toward both self and others.
Demonstrates a rigid, inflexible and stubborn nature.
Most people resort to some minor obsessive-compulsive patterns under severe pressure or when trying to achieve goals that they consider critically important. In fact, many individuals refer to this as superstitious behavior. The study habits required for medical students entail a good deal of compulsive behavior.
As the above examples suggest, there are a variety of addictions possible. Recent news accounts have pointed out that even high-level governmental officials can experience sex addiction. The advent of social-media has led to what is referred to as Internet addiction where an individual is transfixed to a computer, tablet PC or smart-phone, “working” for hours on end without a specific project in mind. The simple act of “surfing”, “tweeting-X”, “texting” or merely posting opinions offers the person afflicted with the addiction some degree of satisfaction.
Still another form of addictive behavior is that of the individual with gambling disorder (GD).
GD is recognized as a mental disorder in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders-V. This is the behavior of an individual who is unable to resist the impulse to gamble. Many reasons have been posited for this type of behavior including the death instinct; a need to lose; a history of trauma; a wish to repeat a big win; identification with adults the “gambler” knew as an adolescent; and a desire for action and excitement. There are other explanations offered for this form of compulsive behavior. The act of betting allows the individual to express an immature bravery, courage, manliness, and persistence against unfavorable odds. By actually using money and challenging reality, he puts himself into “action” and intense emotion. By means of gambling, the addicted individual is able to pretend that he is favored by “lady luck,” specially chosen, successful, able to beat the system and escape from feelings of discontent.
Greed can also have addictive qualities. In fact, a poll conducted by the Chicago Tribune revealed that folks who earned less than $30,000 a year, said that $50,000 would fulfill their dreams, whereas those with yearly incomes of over $100,000 said they would need $250,000 to be satisfied. More recent studies confirm that goals keep getting pushed upward as soon as a lower level is reached.
Edward Looney, executive director of the Trenton, New Jersey based Council on Compulsive Gambling (CCG) reports that the number of individuals calling with trading-associated problems is doubling annually. In the mid 1980s, when the council was formed, the number of people calling the council’s hotline (1 – 800 Gambler) with stock-market gambling problems was approximately 1.5 percent of all calls received. In 1998 that number grew to 3 percent, and rose to 8 percent by 2012. Today, that number is largely unknown because of its pervasiveness, but Dr. Robert Custer, an expert on compulsive gambling reported, that stock market gamblers represent over 20 percent of the gamblers that he has diagnosed. It is evident that on-line trading presents a tremendous risk to the speculator.
The CCG describes some of the consequences:
Dr. Fred B. is a 43-year-old Asian male physician with a salary above $150,000 and in debt for more than $150,000. He is married with two children. He was a day trader.
Michael Q. is a 28-year-old Hispanic male registered nurse. He is married and the father of one (7 month old) child. He earns $65,000 and lost $50,000 savings in day trading and is in debt for $30,000. He has suicidal ideation.
[B] A Question of Suitability
Since online traders are in it for many reasons, investment suitability rarely enters the picture, according to Stuart Kaswell, general counsel of the Securities Industry Association, in Washington, DC. The kind of question that has yet to be confronted, by day or online trading firms, is a statement, such as: “Equities look good this year. We favor technology stocks. We have a research report on our Web page that looks at the social media industry.” Those kinds of things are seldom considered because they do not involve a specific recommendation of a specific stock, like Apple, Google, Groupon, Facebook or Twitter.
However, if a firm makes a specific recommendation to an investor, whether over the cell-phone, iPad®, fax machine, face-to-face, instagram or over the Internet, or Twitter-X, suitability rules should apply. Opining similarly on the “know your customer” requirements is Steven Caruso, of Maddox, Koeller, Harget & Caruso of New York City. “The on-line firms obviously claim that they do not have a suitability responsibility because they do not want the liability for making a mistake as far as determining whether the investor was suitable or buying any security. I think that ultimately more firms are going to be required to make a suitability, [or eventually fiduciary] determination on every trade”.
[C] On-line Traders and Stock Market Gamblers
Some of the preferred areas of stock market gambling that attract the interest of compulsive gamblers include options, commodities, penny stocks and bit-coins, index investing, new stock offerings, certain types of CAT bonds, crowd-sourcing initiatives, and some contracts for government securities. These online traders and investment gamblers think of themselves as cautious long-term investors who prefer blue chip or dividend paying varieties. What they fail to take into consideration is that even seemingly blue chips can both rise and precipitously drop in value again, as seen in the summer of 2003, the “crash” of 2008, or the “flash crash” of May 6, 2010. On this day, the DJIA plunged 1000 points (about 9%) only to recover those losses within minutes. It was the second largest point swing 1,010.14 points, and the biggest one-day point decline, 998.5 points, on an intraday basis in Dow Jones Industrial Average history.
Regardless of investment choice, the compulsive investment gambler enjoys the anticipation of following the daily activity surrounding these investments. Newspaper, hourly radio and television reports, streaming computer, tablet and smart phone banners and hundreds of periodicals and magazines add excitement in seeking the investment edge. The name of the game is action. Investment goals are unclear, with many participating simply for the feeling it affords them as they experience the highs and lows and struggles surrounding the play. And, as documented by the North American Securities Administrators Association’s president, and Indiana Securities Commissioner, Bradley Skolnik, most day or online traders lose money. “On-line brokerage was new and cutting edge and we enjoyed the best stock market in generations, until the crashes. The message of most advertisements was “just do it”, and you’ll do well. The fact is that research and common sense suggest the more you trade, the less well you’ll do”.
Most day or online traders are young males, some who quit their day jobs before the just mentioned debacles; or more recently with the dismal economy. Many ceased these risky activities but there is some anecdotal evidence that is re-surging again with 2013-14 technology boom and market rise. Most of them start every day not owning any stock, then buy and sell all day long and end the trading day again without any stock – – just a lot of cash. Dr. Patricia Farrell, a licensed clinical psychologist states that day traders are especially susceptible to compulsive behaviors and addictive personalities. Mark Brando, registered principal for Milestone Financial, a day trading firm in Glendale, California states, “People that get addicted to trading employ the same destructive habits as a gambler. Often, it’s impossible to tell if a particular trade comes from a problem gambler or a legitimate trader.”
Arthur Levitt, former Chairman of the Securities and Exchange Commission (SEC) in discussing the risks and misconceptions of investing are only amplified by on-line trading. In a speech before the National Press Club a few years ago, he attempted to impress individuals as to the risks and difficulties involved with day trading. Levitt cited four common misconceptions that knowledgeable medical professionals, and all investors, should know:
Personal computers, tablets, mobile devices and smart-phones are not directly linked to the markets – Thanks to Level II computer software, day traders can have access to the same up-to-the-second information available to market makers on Wall Street. “Although the Internet makes it seem as if you have a direct connection to the securities market, you don’t. Lines may clog; systems may break; orders may back-up.”
The virtue of limit orders – “Price quotes are only for a limited number of shares; so only the first few investors will receive the currently quoted price. By the time you get to the front of the line, the price of the stock could be very different.”
Canceling an order – “Another misconception is that an order is canceled when you hit ‘cancel’ on your computer. But, the fact is it’s canceled only when the market gets the cancellation. You may receive an electronic confirmation, but that only mean your request to cancel was received – not that your order was actually canceled”.
Buying on margin – “if you plan to borrow money to buy a stock, you also need to know the terms of the loan your broker gave you. This is margin. In volatile markets, investors who put up an initial margin payment for a stock may find themselves required to provide additional cash if the price of the stock falls.
How then, can the medical professional or financial advisor tell if he or she is a compulsive gambler? A diagnostic may be obtained from Gamblers Anonymous. It is designed to screen for the identification of problem and compulsive gambling.
But, it is also necessary to provide a tool to be used by on-line traders. This questionnaire is as follows:
1. Are you trading in the stock market with money you may need during the next year?
2. Are you risking more money than you intended to?
3. Have you ever lied to someone regarding your on-line trading?
4. Are you risking retirement savings to try to get back your losses?
5. Has anyone ever told you that spend too much time on-line?
6. Is investing affecting other life areas (relationships, vocational pursuits, etc.)?
7. If you lost money trading in the market would it materially change your life?
8. Are you investing frequently for the excitement, and the way it makes you feel?
9. Have you become secretive about your on-line trading?
10. Do you feel sad or depressed when you are not trading in the market?
NOTE: If you answer to any of these questions you may be moving from investing to gambling.
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The cost of compulsive gambling and day trading is high for the individual medical or lay professional, the family and society at large. Compulsive gamblers, in the desperation phase of their gambling, exhibit high suicide ideation, as in the case of Mark O Barton’s the murderous day-trader in Atlanta who killed 12 people and injured 13 more in July 29th 1999. His idea actually became a final act of desperation.
Less dramatically, for doctors, is a marked increase in subtle illegal activity. These acts include fraud, embezzlement, CPT® up-coding, medical over utilization, excessive full risk HMO contracting, Stark Law aberrations and other “white collar crimes.” Higher healthcare and social costs in police, judiciary (civil and criminal) and corrections result because of compulsive gambling. The impact on family members is devastating. Compulsive gamblers cause havoc and pain to all family members. The spouses and other family members also go through progressive deterioration in their lives.
In this desperation phase, dysfunctional families are left with a legacy of anger, resentment, isolation, and in many instances, outright hate.
[D] Day Trading Assessment
Internet day trading, like the Internet and telecommunications sectors, become something of a investment bubble a few years ago, suggesting that something lighter than air can pop and disappear in an instant. History is filled with examples: from the tulip mania of 1630 Holland and the British South Sea Bubble of the 1700’s; to the Florida land boom of the roaring twenties and the Great Crash of 1929; to the collapse of Japans stock and real estate market in early 1990’s; and to an all-time high of $1,926 for an ounce of commodity gold a few years ago.
Today it is Ask: $3,388.30 USD Bid: $3,367.30 USD
CONCLUSION
To this list, one might again include smart-phone or mobile day trading.
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR-http://www.MarcinkoAssociates.com
Posted on July 18, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
MEDICAL EXECUTIVE-POST–TODAY’SNEWSLETTERBRIEFING
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Essays, Opinions and Curated News in Health Economics, Investing, Business, Management and Financial Planning for Physician Entrepreneurs and their Savvy Advisors and Consultants
“Serving Almost One Million Doctors, Financial Advisors and Medical Management Consultants Daily“
A Partner of the Institute of Medical Business Advisors , Inc.
Lucid exploded 36.24% higher on the news that the EV maker is partnering with Uber to roll out the ridesharing company’s new robotaxis.
PepsiCo popped 7.45% thanks to a strong quarter for the snack and soda giant, while shareholders cheered the details of its turnaround plan.
UnitedAirlines may have missed Wall Street’s revenue forecast, but its profits were enough to impress investors. Shares rose 3.11%.
Reports that Union Pacific is thinking about acquiring a rival sent shares of fellow train operators CSX and NorfolkSouthern up 3.73% and 3.65%, respectively.
Sarepta Therapeutics soared 19.53% after the biotech announced it will lay off 500 employees and restructure its entire business.
Quantumscape continued its hot streak, rising yet another 19.82% thanks to its recent battery breakthrough.
Speaking of hot streaks, OpenDoorTechnologies rose another 10.74% as retail traders pour into what is quickly becoming the next big meme stock.
Stocks down
GE Aerospace crushed earnings expectations and raised its fiscal guidance, but it still wasn’t enough to impress investors, who pushed shares of the engine maker down 2.10%.
USBancorp sank 1.03% after revenue and net interest income missed forecasts last quarter.
AbbottLaboratories beat on both top and bottom line guidance, but still fell 8.53% after the pharma company narrowed its fiscal forecasts.
President Trump is expected to sign an executive order in the coming days designed to help make private-market investments more available to U.S. retirement plans, according to people familiar with the matter. The order would instruct the Labor Department and the Securities and Exchange Commission to provide guidance to employers and plan administrators on including investments like private assets in 401(k) plans.
FIVE INVESTING MISTAKES OF DOCTORS; PLUS 1 VITAL TIP
As a former US Securities and Exchange Commission [SEC] Registered Investment Advisor [RIA] and business school professor of economics and finance, I’ve seen many mistakes that doctors must be aware of, and most importantly, avoid. So, here are the top 5 investing mistakes along with suggested guideline solutions.
Mistake 1: Failing to Diversify Investment but Beware Di-Worsification
A single investment may become a large portion of your portfolio as a result of solid returns lulling you into a false sense of security. The Magnificent Seven stocks are a current example:
Apple, up +5,064%% since 1/18/2008
Amazon, up +30,328% since 9/6/2002
Alphabet, up +1,200% since 7/20/2012
Tesla, up +21,713% since 11/16/2012
Meta, up +684% since 2/20/2015
Microsoft, up +22% since 12/21/2023
Nvidia, up +80,797% since 4/15/2005
Guideline: The Magnificent Seven [7] has grown from 9% of the S&P 500 at the end of 2013 to 31% at the end of 2024! That means even if you don’t own them, you’re still very exposed if you have an Index Fund [IF] or Exchange Traded Fund [ETF] that tracks the market. Accordingly, diversification is the only free lunch in investing which can reduce portfolio risk. But, remember the Wall Street insider aphorism that states: “Di-Versification Means Always Having to Say Your Sorry.”
The term “Di-Worsification” was coined by legendary investor Peter Lynch in his book, One Up On Wall Street to refer to over-diversifying an investment portfolio in such a way that it reduces your overall risk-return characteristics. In other words, the potential return rises with an increase in risk and invested money can render higher profits only if willing to accept a higher possibility of losses [1].
A podiatrist can easily fall into the trap of chasing securities or mutual funds showing the highest return. It is almost an article of faith that they should only purchase mutual funds sporting the best recent performance. But in fact, it may actually pay to shun mutual funds with strong recent performance. Unfortunately, many struggle to appreciate the benefits of their investment strategy because in jaunty markets, people tend to run after strong performance and purchase last year’s winners.
Similarly, in a market downturn, investors tend to move to lower-risk investment options, which can lead to missed opportunities during subsequent market recoveries. The extent of underperformance by individual investors has often been the most awful during bear markets. Academic studies have consistently shown that the returns achieved by the typical stock or bond fund investors have lagged substantially.
Guideline: Understand chasing performance does not work.Continually monitor your investments and don’t feel the need to invest in the hottest fund or asset category. In fact, it is much better to increase investments in poor performing categories (i.e. buy low). Also keep in remind rebalancing of assets each year is key. If stocks perform poorly and bonds do exceptionally well, then rebalance at the end of the year. In following this strategy, this will force a doctor into buying low and selling high each year.
Often doctors make their investment decisions under the belief that stocks will consistently give them solid double-digit returns. But the stock markets go through extended long-term cycles.
In examining stock market history, there have been 6 secular bull markets (market goes up for an extended period) and 5 secular bear markets (market goes down) since 1900. There have been five distinct secular bull markets in the past 100+ years. Each bull market lasted for an extended period and rewarded investors.
For example, if an investor had started investing in stocks either at the top of the markets in 1966 or 2000, future stock market returns would have been exceptionally below average for the proceeding decade. On the other hand, those investors fortunate enough to start building wealth in 1982 would have enjoyed a near two-decade period of well above average stock market returns. They key element to remember is that future historical returns in stocks are not guaranteed. If stock market returns are poor, one must consider that he or she will have to accept lower projected returns and ultimately save more money to make up for the shortfall. For example,
The May 6th, 2010, flash crash, also known as the crash of 2:45, was a United States trillion-dollar stock market plunge which started at 2:32 pm EST and lasted for approximately 36 minutes.
And, investors who have embraced the “buy the dip” strategy in 2025 have been handsomely rewarded, with the S&P 500 delivering its strongest post-pull back returns in over three decades.
According to research from Bespoke Investment Group, the S&P 500 has gained an average of 0.36% in the trading session following a down day so far in 2025. The only year with a comparable performance was 2020, which saw a 0.32% average post-dip gain [2].
The most recent example came on May 27, 2025 when the S&P 500 surged more than 2% after falling 0.7% in the final session before the holiday weekend. The rally was sparked by President Trump’s decision to scale back huge previously threatened tariffs on EU —a recurring catalyst behind many of 2025’s rebound.
Guideline: Beware of projecting forward historical returns. Doctors should realize that the stock markets are inherently volatile and that, while it is easy to rely on past historical averages, there are long periods of time where returns and risk deviate meaningfully from historical averages.
Some doctors believe they are “smarter than the market” and can time when to jump in and buy stocks or sell everything and go to cash. Wouldn’t it be nice to have the clairvoyance to be out of stocks on the market’s worst days and in on the best days?
Using the S&P 500 Index, our agile imaginary doctor-investor managed to steer clear of the worst market day each year from January 1st, 1992 to March 31st, 2012. The outcome: s/he compiled a 12.42% annualized return (including reinvestment of dividends and capital gains) during the 20+ years, sufficient to compound a $10,000 investment into $107,100.
But what about another unfortunate doctor-investor that had the mistiming to be out of the market on the best day of each year. This ill-fated investor’s portfolio returned only 4.31% annualized from January 1992 – March 2012, increasing the $10,000 portfolio value to just $23,500 during the 20 years. The design of timing markets may sound easy, but for most all investors it is a losing strategy.
More contemporaneously on December 18th 2024, the DJIA plummeted 2.5%, while the S&P 500 declined 3% and the NASDAQ tumbled 3.5%
Guideline: If it looks too good to be true, it probably is. While jumping into the market at its low and selling right at the high is appealing in theory, we should recognize the difficulties and potential opportunity and trading costs associated with trying to time the stock market in practice. In general, colleagues are be best served by matching their investment with their time horizon and looking past the peaks / valleys along the way.
Mistake 5: Failing to Recognize the Impact of Fees and Expenses
A free dinner seminar or a polished stock-broker sales pitch may hide the total underlying costs of an investment. So, fees absolutely matter.
The first costing step is determining what the fees actually are. In a mutual fund, these costs are found in the company’s obligatory “Fund Facts”. This manuscript clearly outlines all the fees paid–including up front fees (commissions and loads), deferred sales charges and any switching fees. Fund management expense ratios are also part of the overall cost. Trading costs within the fund can also impact performance.
Here is a list of the traditional mutual fund fees:
Front End Load: The commission charged to purchase a fund through a stock broker or financial advisor. The commission reduces the amount you have available to invest. Thus, if you start with $100,000 to invest, and the advisor charges up to an 8 percent front end load, you end up actually investing $92,000.
Deferred Sales Charge (DSC) or Back End Load: Imposed if you sell your position in the mutual fund within a pre-specified period of time (normally one – five years). It is initiated at a higher start percentage (i.e. as high as 10 percent) and declines over a specific period of time.
Operating Fees: Costs of the mutual fund including the management fee rewarded to the manager for investment services. It also includes legal, custodial, auditing and marketing fees.
Annual Administration Fee: Many mutual fund companies also charge a fee just for administering the account – usually under $100-150 per year.
Guideline: Know and understand all fees.
For example: A 1 percent disparity in fees may not seem like much but it makes a considerable impact over a long time period.
Consider a $100,000 portfolio that earns 8 percent before fees, grows to $320,714 after 20 years if the investor pays a 2 percent operating fee. In comparison, if s/he opted for a fund that charged a more reasonable 1 percent fee, after 20 years, the portfolio grows to be $386,968 – a divergence of over $66,000!
This is the value of passive or index investing. In the case of an index fund, fees are generally under 0.5 percent, thus offering even more savings over a long period of time.
One Vital Tip: Investing Time is on Your Side
Despite thousands of TV shows, podcasts, textbooks, opinions and university studies on investing, it really only has three simple components. Amount invested, rate of return and time. By far, the most important item is time! For example:
Nvidia: if you invested $1,000 in 2009, you’d have $338,103 today.
Apple: if you invested $1,000 in 2008, you’d have $48,005 today.
Netflix: if you invested $1,000 in 2004, you’d have $495,679 today.
Unfortunately, this list of investing mistakes is still being made by many doctors. Fortunately, by recognizing and acting to mitigate them, your results may be more financially fruitful and mentally quieting.
REFERENCES:
1. Lynch, Peter: One Up on Wall Street [How to Use What You Already Know to Make Money in the Market]: Simon and Shuster (2nd edition) New York, 2000.
1. Marcinko, DE; Comprehensive Financial Planning Strategies for Doctors and Advisors [Best Practices from Leading Consultants and Certified Medical Planners™] Productivity Press, New York, 2017.
2. Marcinko, DE: Dictionary of Health Economics and Finance. Springer Publishing Company, New York, 2006.
3. Marcinko, DE; Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors [Best Practices from Leading Consultants and Certified Medical Planners™] CRC Press, New York, 2015.
BIO: As a former university Professor and Endowed Department Chair in Austrian Economics, Finance and Entrepreneurship, the author was a NYSE Registered Investment Advisor and Certified Financial Planner for a decade. Later, he was a private equity and wealth manager
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit an RFP for speaking engagements: CONTACT: Ann Miller RN MHA at MarcinkoAdvisors@outlook.com -OR-http://www.MarcinkoAssociates.com
WHAT YOU “MUST KNOW“ ABOUT FINANCIAL ADVISORY FEES
Investment fees still matter despite dropping dramatically over the past several decades due to computer automation, algorithms and artificial intelligence, etc. And, they can make a big difference to your financial health. So, before buying any investment, it’s vital to uncover all real financial advisor and stock broker costs.
1. Up-front salesperson commissions. It is easy to ask; “If I buy this investment today and want to get out tomorrow, how much money do I get back?” If the answer is not “all your money,” the difference is probably upfront fees and commissions. These fees may run as high as 30% of the money invested. If you were to earn 5% a year on the investment, it would take 8 years just to break even.
2. Ongoing advisory fees. These are monthly, quarterly, or annual fees paid to advisors for their investment advice and oversight. This includes working with you to pick the asset classes, set diversification, select a portfolio manager, optimize taxes, re-balance holdings and other periodic tasks.
These fees have many names including wrap fee or investment advisory fees. The normal “rule of thumb” is 1% of assets managed, although fees can range from 0 to 7%. Today, it can even be as low as .5%. It can be charged even if the advisor receives an upfront commission. It can be easy to see, or hidden in the fine print.
3. Additional service fees. Find out specifically what services are included financial advisory fees. Additional fees for financial planning or other services are rarely disclosed. They can range from minimal hand-holding focused on your investments to comprehensive financial planning.
4. Ongoing managerial expense ratio fees. These are incredibly well hidden that you may not see them in your statements or invoices. The only way to know is to read the prospectus or other third party analysis, like Morningstar.com. And, they can vary greatly for the same investment, depending on the class of share you buy.
For example, American Fund’s New Perspective Fund’s expense ratio ranges from 0.45% to 1.54%. The average expense ratio of a mutual fund that invests in stocks is 1.35%. Conversely, the average expense ratio of a Vanguard S&P 500 Fund is 0.10%. The difference of 1.25% is staggering over time.
5. Miscellaneous fees. Some advisors charge $50 – $100 a year per account to open or close an account, and even fees to dollar cost average your funds into the market.
6. Transaction fees. Every time you buy or sell a fund, a fee is typically paid to a custodian. These can range from $5 to hundreds of dollars per transaction.
7. Fee Only: Paid directly by clients for their services and can’t receive other sources of compensation, such as payments from fund providers. Act as a fiduciary, meaning they are obligated to put their clients’ interests first
8. Fee Based: Paid by clients but also via other sources, such as commissions from financial products that clients purchase. Brokers and dealers (or registered representatives) are simply required to sell products that are “suitable” for their clients.
A “suitable” investment is defined by FINRA as one that fits the level of risk that an investor is willing and able, as measured by personal financial circumstances, to take on. The Financial Industry Regulatory Authority is a private American corporation that acts as a Self Regulatory Organization (SRO) that regulates member stock brokerage firms and exchange markets. These criteria must be met. It is not enough to state that an investor has a risk-friendly investment profile. In addition, they must be in a financial position to take certain chances with their money. It is also necessary for them to
A hedge fund is a limited partnership of private investors whose money is managed by professional fund managers who use a wide range of strategies; including leveraging [debt] or trading of non-traditional assets [real-estate, collectible, commodities, cyrpto-currency, etc] to earn above-average returns. Hedge funds are considered a risky alternative investment and usually require a high minimum investment or net worth. This person is known as an “accredited investor” or “Regulation D” investor by the US Securities Exchange Commission and must have the following attributes:
A net worth, combined with spouse, of over $1 million, not including primary residence
An income of over $200,000 individually, or $300,000 with a spouse, in each of the past two years
Choose the fee structure. The fee structure should align with your needs. Consider the type of advice you seek, the number of times needed and the complexity of your financial situation. You can always negotiating tactics are free to ask for a better deal.
Compare fees. It is essential to research and compare different fees. Be sure to read the fine print for details or costs that are not a base fee.
Robo-advisors: For simple investment goals, with little specificity, robo-advisors may be a cost-effective option. They charge lower fees than conventional financial advisors and provide an automated, algorithmic approach to managing your investments.
Assessment
The average cost of working with a human financial advisor in 2024 was 0.5% to 2.0% of assets managed, $200 to $400 per hourly consultation, a flat fee of $1,000 to $3,000 for a one-time service, and/or a 3% to 6% commission fee on the product types sold.
When ruminating over financial advisory fees; read and understand the contract with disclosures, do not sign a confidentiality or non-disclosure agreement, and do not waive your right to a lawsuit. According to colleague Dr. Charles F. Fenton IIII JD, forced legal settlements almost always favor the advisor over the client.
2. Marcinko, DE and Hetico, HR; Comprehensive Financial Planning Strategies for Doctors and Advisors [Best Practices from Leading Consultants and Certified Medical Planners™] Productivity Press, New York, 2017.
3. Marcinko, DE: Dictionary of Health Economics and Finance. Springer Publishing Company, NY 2006
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit a RFP for speaking engagements: MarcinkoAdvisors@outlook.com
As many medical, dental and podiatric colleagues are aware, Environmental, Social and Governance (ESG) investing refers to a set of standards for a company’s behavior used by socially conscious investors to screen potential investments. Over the last decade, or so, I have seen many investors pursing this laudable aim.
Yet, more than 80% of private equity fund managers have now stepped away from at least one deal due to ESG concerns, according to the 2023 BDO Private Capital Survey. The reasons are complex, and point towards fund managers’ sentiment towards risk-reward in the current economic environment.
This retreat from ESG is due to backlash from conservatives who are critical of the idea that mutual fund managers should be considering any other factor but a company’s share holders in their investment decisions. Accusations of “Greenwashing” have also plagued many ESG funds, which is when an asset management firm charging higher fees or a specific thematic fund without actually delivering a unique investment strategic competitive advantage.
Greenwashing is the process of conveying a false impression or misleading information about how a company’s products are environmentally sound. Greenwashing involves making an unsubstantiated claim to deceive consumers and / or investors into believing that a company’s products are environmentally friendly or have a greater positive environmental impact than they actually do. Greenwashing may also occur when a company attempts to emphasize sustainable aspects of a product to overshadow the company’s involvement in environmentally damaging practices.
According to internationally known linguistics and cognitive science Professor,Mackenzie Hope Marcinko PhD of the University of Delaware, greenwashing is performed through the use of environmental imagery, misleading labels, cognitive biases and tendencies hiding tradeoffs. Greenwashing is also a play on the term “Whitewashing,” which means using false information to intentionally hide wrongdoing, errors or an unpleasant situation in an attempt to make it seem less bad than it really is.
To be sure, uncertainty around ESG regulations in the USA is leading financial deal makers to tread carefully. For example, Jim ClaytonMBA, aprivate equity advisor also from the University of Delaware recently stated:
“We’re a year past when the SEC said they were going to issue ESG reporting standards for public filers which has created more noise in the system.”
“People are nervous about what I would call ESG-intense exposed industries, in other words, those with “heavy carbon footprints”.
And, a federal judge in Texas said that American Airlines violated federal law by basing investment decisions for its employee retirement plan on environmental, social, and other non-financial factors. The ruling in January 2025 by US District Judge Reed O’Connor appeared to be the first of its kind amid growing backlash by conservatives to an uptick in socially-conscious investing. O’Connor said American had breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock, its asset manager and a major shareholder, to focus on environmental, social and corporate governance (ESG) factors.
Even the State of Florida pulled $2 billion from the investment management firm BlackRock in the largest divestment ever made. Florida Governor Ron DeSantis claimed that by taking ESG standards into account when making investment decisions, the firm isn’t prioritizing the financial bottom line for Floridians.
Assessment
But, for a few years at least, things were indeed good. In 2020 and 2021, ESG funds outperformed the market by ~4.3%.
Conclusion
So, always remember [caveat emptor]: let the buyer beware!
2. Marcinko, DE; Comprehensive Financial Planning Strategies for Doctors and Advisors [Best Practices from Leading Consultants and Certified Medical Planners™] Productivity Press, New York, 2017
3. Marcinko, DE: Dictionary of Health Economics and Finance. Springer Publishing Company, NY 2006.
SPEAKING: Dr. Marcinko will be speaking and lecturing, signing and opining, teaching and preaching, storming and performing at many locations throughout the USA this year! His tour of witty and serious pontifications may be scheduled on a planned or ad-hoc basis; for public or private meetings and gatherings; formally, informally, or over lunch or dinner. All medical societies, financial advisory firms or Broker-Dealers are encouraged to submit a RFP for speaking engagements: MarcinkoAdvisors@outlook.com
A proxy statement tells you a lot about a company’s management and board of directors, providing details about compensation, large shareholders, and the accounting firm that audits the company books. It also includes information about shareholder resolutions and the board’s responses to those proposals.
Each publicly traded company files a proxy statement with the Securities and Exchange Commission (SEC) every year, and it’s used by shareholders to help cast votes on their proxy ballots. The board may provide recommendations to vote for or against a proposal, but investors should do their best to collect the facts and make a decision on their own.
According to Motley Fool, about once every year, for most companies, you will have the right to vote your shares on a variety of topics related to the companies you own in your portfolio. These are called proxy votes. Regular individual shareholders generally receive one vote per share owned. Some companies have multiple classes of shares, and management and other insiders will have a higher level of voting power (for example, 10 votes per share).
Every year, you will receive a proxy statement in the mail or electronically. This document gives you insight into a variety of important issues to consider and vote on using your proxy ballot.
An investment advisor (sometimes spelled “investment adviser”) is defined as a company or person who has a government registration allowing them to choose, manage and recommend investments for clients. Investment advisors are also sometimes referred to as stock brokers. They are not fiduciaries.
Unlike other financial advisors who may not be regulated, investment advisors are regulated by their state or the Securities Exchange Commission depending on how much money they manage. Investment advisors may also offer services like retirement planning.
COMMENTS APPRECIATED
The Medical Executive-Post is a news and information aggregator and social media professional network for medical and financial service professionals. Feel free to submit education content to the site as well as links, text posts, images, opinions and videos which are then voted up or down by other members. Comments and dialog are especially welcomed. Daily posts are organized by subject. ME-P administrators moderate the activity. Moderation may also conducted by community-specific moderators who are unpaid volunteers.
Posted on May 20, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Coinbase under investigation – Hit with ransom attack
Coinbase’s wild week got much wilder when the New York Times reported that the SEC has been looking into whether the crypto exchange misstated the size of its user base in securities filings. Per the New York Times, the investigation started under President Biden and has continued under President Trump.
The subject of the investigation appears to be Coinbase’s claim in past disclosures and marketing materials that it has 100 million “verified users.” A company spokesperson said it no longer reports that metric and the investigation should not continue.
The report came days after Coinbase joined the S&P 500, and just hours after it said it could lose $400 million following a recent hack by “rogue overseas” agents looking to steal customer data.
An annuity is a contract between you and an insurance company. When you purchase an annuity, you make a lump-sum contribution or a series of contributions, generally each month. In return, the insurance company makes periodic payments to you beginning immediately or at a pre-determined date in the future. These periodic payments may last for a finite period, such as 20 years, or an indefinite period, such as until both you and your spouse are deceased. Annuities may also include a death benefit that will pay your beneficiary a specified minimum amount, such as the total amount of your contributions.
The growth of earnings in your annuity is typically tax-deferred; this could be beneficial as you may be in a lower tax bracket when you begin taking distributions from the annuity.
Warning: A word of caution: Annuities are intended as long-term investments. If you withdraw your money early from an annuity, you may pay substantial surrender charges to the insurance company as well as tax penalties to the IRS and state.
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There are three basic types of annuities — fixed, indexed, and variable
1. With a fixed annuity, the insurance company agrees to pay you no less than a specified (fixed) rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified (fixed) amount per dollar in your account.
2. With an indexed annuity, your return is based on changes in an index, such as the S&P. Indexed annuity contracts also state that the contract value will be no less than a specified minimum, regardless of index performance.
3. A variable annuity allows you to choose from among a range of different investment options, typically mutual funds. The rate of return and the amount of the periodic payments you eventually receive will vary depending on the performance of the investment options you select.
The Medical Executive-Post is a news and information aggregator and social media professional network for medical and financial service professionals.
Feel free to submit education content to the site as well as links, text posts, images, opinions and videos which are then voted up or down by other members. Comments and dialog are especially welcomed.
Daily posts are organized by subject. ME-P administrators moderate the activity. Moderation may also conducted by community-specific moderators who are unpaid volunteers.
A hedge fund is a limited partnership of private investors whose money is pooled and managed by professional fund managers. These managers use a wide range of strategies, including leverage (borrowed money) and the trading of nontraditional assets, to earn above-average investment returns. A hedge fund investment is often considered a risky, alternative investment choice and usually requires a high minimum investment or net worth. Hedge funds typically target wealthy investors.
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The Hedge Fund manager I am considering is a Registered Investment Adviser [RIA]
QUESTION: What is a Registered Investment Advisor?
If the fund manager is an entity, then any individual you deal with will be a registered investment adviser representative. If the fund manager is an individual, then that individual is a registered investment adviser. In either case, the designation implies several steps have been taken.
In order to become a registered investment adviser, an individual must register for and pass the Series 65 Uniform Investment Adviser Law Exam, a three-hour, 130-question computer-based exam administered by the North American Securities Administrators Association. Topics covered include economics and analysis, investment vehicles, investment recommendations and strategies, and ethics and legal guidelines. A passing score is 70 percent or higher.
Once an individual has passed the Series 65, he or she must then apply via Form ADV to become a registered investment adviser. This application is made to either a state authority or to the SEC, depending on the adviser’s assets under management. If assets under management exceed $30 million, then the adviser must register with the SEC.
Form ADV consists of two parts. Part I provides general information to the regulatory authority. Part II is designed to be distributed to potential clients, and includes disclosure of a decent amount of information about the adviser. If the manager is a registered investment adviser, then you should expect to receive as part of the offering documentation either a current copy of Part II of the adviser’s Form ADV or a brochure that contains all the current information in Part II of Form ADV.
In addition to filing Form ADV and paying a small fee, the registered investment adviser becomes subject to extra administrative/regulatory burden as well as capital adequacy requirements that state the Adviser must maintain certain net worth levels.
By and large, because of the extra administrative burden as well as restrictions on certain activities, hedge fund managers attempt to avoid registering as investment advisers. Whether such managers can or cannot avoid such registration is largely dependent upon the state in which the manager operates. In California, for instance, hedge fund managers must register as investment advisers. In New York, such registration is not necessary. Not surprisingly, hedge fund managers located in California are rare, while they are quite plentiful in New York.
Posted on March 4, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
Electronic Data Gathering, Analysis, and Retrieval
By Staff Reporters
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EDGAR (Electronic Data Gathering, Analysis, and Retrieval) is an internal database system operated by the U.S. Securities and Exchange Commission (SEC) that performs automated collection, validation, indexing, and accepted forwarding of submissions by companies and others who are required by law to file forms with the SEC. The database contains a wealth of information about the commission and the securities industry which is freely available to the public via the Internet.
In September 2017, SEC Chairman Jay Clayton revealed the database had been hacked and that companies’ data may have been used by criminals for insider trading.
Posted on February 15, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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What Is a Pig Butchering Scam?
Pig butchering scams get their colorful (and gory) name from the process of fattening hogs before slaughtering them. Except in this case, it’s a scammer making friends with you before taking your money. These cons have four distinct phases:
Initial contact is made by a scammer. The scammers are often enslaved by organized crime rings who force them to contact potential victims through social media platforms, dating apps, online networking sites, and job boards.
Fattening, a phase where the scammer gets to know and builds trust with a victim. They may pretend to be romantically interested in the victim, befriend the victim, or offer the victim a job.
Slaughter refers to the phase where the con pays off. Scammers may persuade victims to send them money, invest in a fake company or cryptocurrency, or reveal sensitive personal information that can be used for identity theft. Over time, scammers ask for large sums of money threatening to end contact if victims refuse to pay.
Shaming and disappearance. Scammers will continue their relationship with the victim until the victim is unable to pay or catches onto the scam. Scammers may taunt their victims to shame them into silence, or they may simply vanish along with any accounts, websites, or apps they’ve been using.
How to Avoid Pig Butchering Scams:
To avoid becoming a victim of a pig butchering type scam, watch for these red flags and know how to protect yourself:
Unexpected contact: Never respond to unsolicited messages from unknown contacts, even about seemingly benign topics, especially via text message and on encrypted messaging applications.
Refusal to participate in video chats: If someone you’ve been messaging with consistently declines to interact face-to-face, they likely aren’t the person from the profile photo.
Request for financial information: Don’t share any personal financial information with individuals you’ve never met in person. If a new virtual friend or romantic connection starts making financial inquiries, put the brakes on the relationship.
Invitation to invest in specific financial products: Be wary of any unsolicited investment advice or tips, particularly from someone you’ve only spoken to online and even if they suggest you trade through your own account. Always question what a source has to gain from sharing tips with you and whether the transaction fits with your financial goals and investment strategy.
Unknown or confusing investment opportunity: Carefully evaluate the product, as well as the person and/or company requesting your investment. Along with a basic search, try adding words like “scam” or “fraud” to see what results come up. Consider running recommendations by a third party or an investment professional who has no stake in the investment, and use FINRA BrokerCheck to see if the promoter is a registered investment professional.
Unfamiliar trading platforms: Do extensive research before moving any money, particularly in an emerging market like cryptocurrency, which has hundreds of exchanges and new avenues for trading continuing to evolve. Who controls the platform? What security measures are in place? How can you withdraw funds if needed? If you don’t know the answers to those questions, don’t put your assets there.
Exaggerated claims and elevated emotions: Take a closer look at any investment that offers much higher than average returns or is touted as “guaranteed.” Fraudsters will also often use their knowledge about you to appeal to your emotions—something like, “Don’t you want to have money to send your kids to college?”
Sense of urgency about an upcoming news announcement or share price increase: Remember that insider trading is illegal, and you should never trade in shares of a company on the basis of material, nonpublic information.
If you think you’ve been a victim of a pig butchering stock scam, submit a regulatory tip to FINRA. If you think you’ve been the victim of internet fraud, file a report with the FBI’s Internet Crime Complaint Center.
Posted on February 8, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
MEDICAL EXECUTIVE-POST–TODAY’SNEWSLETTERBRIEFING
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Essays, Opinions and Curated News in Health Economics, Investing, Business, Management and Financial Planning for Physician Entrepreneurs and their Savvy Advisors and Consultants
“Serving Almost One Million Doctors, Financial Advisors and Medical Management Consultants Daily“
A Partner of the Institute of Medical Business Advisors , Inc.
The U.S. added 143,000 jobs in January, fewer than economists expected, but the unemployment rate inched down to 4% from 4.1%, beating forecasts. Forecasters surveyed by Dow Jones had anticipated 169,000 payroll gains in January, after a surprisingly large 256,000 jump in December.
Last month, the Securities and Exchange Commission said Vanguard would pay more than $100 million to settle charges for misleading statements related to capital gains distributions and tax consequences for retail investors who held Vanguard Investor Target Retirement Funds in taxable accounts.
Major U.S. equities indexes moved lower to close out the trading week as the January jobs report showed slower-than-expected hiring but a down tick in the unemployment rate. Despite the slump in job additions, the overall resilience in the labor market could encourage the Federal Reserve to hold off on additional interest-rate cuts. The S&P 500 and the Dow ended Friday’s session with daily losses of roughly 1.0%. The tech-heavy NASDAQ fell 1.4%.
Most notable this month is the appointment of Tim Noel as the new CEO of UnitedHealthcare after former CEO Brian Thompson was fatally shot in New York City in December.
Visualize: How private equity tangled banks in a web of debt, from the Financial Times.
While IAs and FAs may seem the same, they are not the same. The Financial Industry Regulatory Authority (FINRA) and the Securities Exchange Commission (SEC) have clearly defined investment advisors as distinct from financial advisors.
The term financial advisor is a generic one that can encompass many different financial professionals, although it most commonly refers to stock brokers (individuals or companies that buy and sell securities).
Investment advisor, on the other hand, is a legal term and thus has a more clear-cut definition – or at least as clear as legalese is apt to be.
KEY DIFFERENCES:
Financial advisors help with all aspects of your finances, including saving, budgeting, insurance, retirement planning, and taxes.
Investment advisors focus specifically on choosing and managing investment portfolios.
Financial advisors offer broader financial guidance, while investment advisors concentrate solely on investments.
Investment advisors are held to the fiduciary standard, while financial advisors who work as brokers may operate under different rules.
Posted on January 11, 2025 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Credit report with score on a desk
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Credit analysis is a form of financial analysis used primarily to determine the financial strength of the issuer of a security, and the ability of that issuer to provide timely payment of interest and principal to investors in the issuer’s debt securities. Credit analysis is typically an important component of security analysis and selection in credit-sensitive bond sectors such as the corporate bond market and the municipal bond market.
Credit default swap index (CDX) is a credit derivative, based on a basket of CDS, which can be used to hedge credit risk or speculate on changes in credit quality.
Credit default swaps (CDS) are credit derivative contracts between two counterparties that can be used to hedge credit risk or speculate on changes in the credit quality of a corporation or government entity.
Credit quality reflects the financial strength of the issuer of a security, and the ability of that issuer to provide timely payment of interest and principal to investors in the issuer’s securities. Common measurements of credit quality include the credit ratings provided by credit rating agencies such as Standard & Poor’s and Moody’s. Credit quality and credit quality perceptions are a key component of the daily market pricing of fixed-income securities, along with maturity, inflation expectations and interest rate levels.
Credit Rating Agency (CRA) is a company that assigns credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves. In the United States, the Securities and Exchange Commission (SEC) permits investment banks and broker-dealers to use credit ratings from “Nationally Recognized Statistical Rating Organizations” (NRSRO) for similar purposes. As of January 2012, nine organizations were designated as NRSROs, including the “Big Three” which are Standard and Poor’s, Moody’s Investor Services and Fitch Ratings.
Credit rating downgrade, by a credit rating agency (Standard & Poor’s, Moody’s or Fitch) means reducing its credit rating for a debt issuer and/or security. This is based on the agency’s evaluation, indicating, to the agency, a decline in the issuer’s financial stability, increasing the possibility of default. A downgrade should not to be confused with a default; a debt security can be downgraded without defaulting. And, conversely, a debt issuer can suddenly default without being downgraded first–credit ratings and credit rating agencies are not infallible.
Credit ratings are measurements of credit quality provided by credit rating agencies. Those provided by Standard & Poor’s typically are the most widely quoted and distributed, and range from AAA (highest quality; perceived as least likely to default) down to D (in default). Securities and issuers rated AAA to BBB are considered/perceived to be “investment-grade”; those below BBB are considered/perceived to be non-investment-grade or more speculative.
Credit risk is the inability or perceived inability of the issuers of debt securities to make interest and principal payments will cause the value of those securities to decrease. Changes in the credit ratings of debt securities could have a similar effect.
Credit Risk Transfer Securities (CRTS) are unsecured obligations of the GSEs (Government Sponsored Enterprises). Although cash flows are linked to prepays and defaults of the reference mortgage loans, the securities are unsecured loans, backed by general credit rather than by specified assets.
The 30-Day SEC Yield represents net investment income earned by a fund over a 30-day period, expressed as an annual percentage rate based on the fund’s share price at the end of the 30-day period. The SEC Yield should be regarded as an estimate of the fund’s rate of investment income, and it may not equal the fund’s actual income distribution rate, the income paid to a shareholder’s account, or the income reported in the fund’s financial statements.
The 52-Week Drawdown is the lowest price at which a security, such as a stock, has traded during the previous 52 weeks
Posted on December 5, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
MEDICAL EXECUTIVE-POST–TODAY’SNEWSLETTERBRIEFING
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Essays, Opinions and Curated News in Health Economics, Investing, Business, Management and Financial Planning for Physician Entrepreneurs and their Savvy Advisors and Consultants
“Serving Almost One Million Doctors, Financial Advisors and Medical Management Consultants Daily“
A Partner of the Institute of Medical Business Advisors , Inc.
The CEO of UnitedHealthcare, Brian Thompson, was fatally shot in the chest on Wednesday morning outside the Hilton hotel in Midtown, the New York Post reported, citing police sources. WPIX reported Thompson, 50, was shot just before 7 a.m. near a hotel on 54th Street between 6th and 7th Avenues.
President-elect Donald Trump officially announced the nomination of Paul Atkins as the next chair of the Securities and Exchange Commission on Wednesday. Atkins, currently the CEO at Patomak Global Partners, served as SEC chair under the George W. Bush administration from 2002 to 2008. Unlike his potential predecessor Gary Gensler, who is set to leave office in January 2025, Atkins is seen as a pro-cryptocurrency official and currently serves on the advisory board for digital securities issuance platform Securitize.
Did you know that Federal and state laws require Registered Investment Advisors [RIAs] be held to a fiduciary standard? To satisfy this extremely high legal standard, an advisor must act solely in the best interest of the client, even if that interest is in conflict with the advisor’s own financial interests. Investment Advisors [IAs] must disclose any conflict, or potential conflict, to the client prior to and throughout a business engagement. Investment Advisors must fully disclose, in writing, how they are compensated. In addition, most adopt a Code of Ethics to ensure that fiduciary obligations are achieved.
Brokers or Advisors
Unfortunately, not all “financial advisors” work for federally or state-registered investment advisory firms. Many so-called financial advisors are registered representatives, better known as stock-brokers, and are employed by brokerage firms [broker-dealers]. Generally, these registered representatives [RRs] need not comply with the fiduciary duty standard that is owed when you are dealing with a registered investment advisory firm. Because broker-dealers are not necessarily acting in your best interest, the SEC [remember what a fine job former Commissioner Chris Cox did for investors in the Bernie Madoff incident?] and FINRA [NASD] require them to add the following disclosure to your client agreement.
Disclosure
Read this disclosure, and decide if this is the type of relationship you want to dictate your financial security:
“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”
Disclaimers
If this disclaimer appears in agreements you are signing, or have already signed, you should ask questions of your advisor. S/he’s probably a broker. Obtain complete disclosure about how he or she is compensated, and where his or her first loyalties lie. Then decide if the relationship is in your best interest [Source: www.focusonfiduciary.com NAPFA Consumer Education Foundation]. Also, consider mediation and arbitration clauses very carefully. Do not wave your rights to litigation. Your patients do not; and neither should you!
Assessment
I am a doctor, former stock-broker, registered-rep, certified financial planner and licensed insurance agent who decided there must be a better way to help physician colleagues. As a health economist, and Founder of www.CertifiedMedicalPlanner.org I’ve believe I’ve found that way.
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:
When it comes to purchasing a medical practice, there are a variety of factors that one must consider in evaluating the worth of the practice. Assessing the value of a practice is fraught with potential landmines if one does not go into the process with a strong understanding of some key principles to medical practice valuation.
According to the Dictionary of Health Economics and Finance, practice valuation is the “formal process of determining the worth of healthcare or other medical business entity at a specific point in time and the act or process of determining fair market value.” Fair market value is defined as “ … the price at which a willing buyer will buy and a willing seller will sell an asset in an open free market with full disclosure.”
The Internal Revenue Service (IRS) Revenue Ruling 59-60 clearly states that fair market value “is essentially a future prophecy and must be based on facts available at the required date of appraisal.”
Unfortunately, one cannot directly observe the value of a medical practice as there are a number of underlying issues. Obviously, the buyer and seller are pursuing opposite objectives, and this reality is not necessarily conducive to facilitating clarity on those issues.
Accordingly, let us consider a few mistakes that are commonly made by physicians who are considering the purchase of a medical practice.
A Guide To The Myths And Realities Of Medical Practice Valuation
• Valuations are material representations providing a range of transferable worth. • Valuations are reproducible estimates based on economic assumptions. • Valuations are not “back of the envelope multiples” using specious benchmarks. • Valuations are defensible and should be “signed off” by the completing firm attesting to origination guidelines and in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) and IRS formats as needed. • Financial accounting value (book value) is not fair market value. • Professional valuators represent only one party. The buyer or seller-owner is the client. • Unbiased valuators do not provide financing or equity participation schemes.
Knowing The Distinctions Among Engagement Types
The Institute of Medical Business Advisors uses three levels that approximate engagement types for the industry. These levels are comprehensive valuation, limited valuation and ad-hoc valuation.
A comprehensive valuation is an extensive service designed to provide an unambiguous opinion of the value range. It is supported by all procedures that valuators deem relevant with mandatory onsite review. This gold standard is suitable for contentious situations like divorce, partnership dissolution, estate planning and gifting, etc. The written opinion of value is applicable for litigation support activities like depositions and trial. It is also useful for external reporting to bankers, investors, the public and IRS, etc.
A limited valuation lacks additional suggested USPAP procedures. It is considered to be an “agreed upon procedure,” which is used in circumstances in which the client is the only user. For example, one may use the limited valuation when updating a buy-sell agreement or when putting together a practice buy-in for a valued associate. This limited valuation would not be for external purposes. No onsite visit is needed. A formal opinion of value is not rendered.
An ad-hoc valuation is a low level engagement that provides a gross and non-specific approximation of value based on limited limited parameters or concerns by involved parties. Neither a written report nor an opinion of value is rendered. The ad-hoc valuation is often used periodically as an internal organic growth/decline gauge.
Are You Following Industry Standards And Rules?
Specifically, when it comes to USPAP transactions involving physician practices, the following points are implied by the industry and the IRS.
• Discounted cash flow analysis is the most relevant income approach and must be done on an “after-tax” basis. It generally produces a higher value but is costly, detail-oriented and time consuming. • Project practice collections based on reasonable assumptions for the practice and market, etc. • Physician compensation is based on market rates consistent with age, experience and productivity. • Majority (control) premiums and minority (lack of control) discounts are also to be considered. A majority premium is the amount paid to gain enough ownership to set policies, direct operations and make decisions for the practice. A minority discount for partial ownership does not allow this power. Thus, majority ownership is valuated higher than minority ownership purchase.
What About Personal Goodwill And Practice Goodwill?
Goodwill represents the difference between practice purchase price and the value of the net assets. Personal goodwill results from the charisma, skills and reputation of a specific doctor. These attributes accrue solely to the individual, are not transferable and cannot be sold. Personal goodwill has little or no economic value.
Transferable medical practice goodwill has value, may be transferred and is defined as the unidentified residual attributes that contribute to the propensity of patients and managed care contracts (and their revenue streams) to return in the future.
However, bear in mind that the Goodwill Registry, an older source used to determine the average percentage of revenue contributed to practice goodwill, has sparse to no podiatry input, may be dated for some specialties and leads to abnormally high values.
In addition to various multiple factors, one must also appreciate the impact of a changing environment and practice transfer in a local market, which can augment or blunt goodwill value. It is also important to determine whether patients or HMOs return because of true goodwill or are mandated to do so by contractual obligations.
Now to further confuse the issue, how each kind of goodwill is allocated in situations like divorce depends on state law. For example, some courts weigh in on the apportionment of both kinds of goodwill, other courts exclude both kinds of goodwill and other courts pursue a case-by-case approach.
Understanding ‘Excess Earnings Capitalization’ And Compensation Issues
Another way to determine goodwill value is through “excess earnings capitalization.” This economic method looks at the difference between salary and what you would have to pay a comparable doctor replacement.
As an example, when you subtract the numbers and divide the result by 20 percent, an important percentage referred to as the capitalization rate emerges. The final number gives a dollar value for practice goodwill. Courts seem to prefer this method in divorce situations because it tends to reflect a practice’s current value.
Regardless of the practice business model, physician compensation is inversely related to practice value. In other words, the more a doctor takes home in above average salary, the less the practice is generally worth and vice versa.
Emphasize Practice Specifics Over Benchmarks And Formulas
In the stable economic past, physicians may have used industry benchmarks as quick and inexpensive substitutes for professionally prepared valuations. However, this practice can be fraught with peril if challenged. The courts seem to frown on this simplistic and dated methodology. Moreover, generic benchmark formulas assume a financial statement reporting standard that just does not exist with contemporary professional valuations.
Therefore, almost every competitive issue that impacts value should be addressed with each practice engagement. This includes but is not limited to:
• contemporary dislocations by third parties, Medicare and commercial payers; • retail clinics and changes in supply/ demand and specialty trends; • the rise of ambulatory surgery centers, walk-in clinics and specialty hospitals; • outsourced care and medical tourism; • alterations in resource based-relative value units, ambulatory payment classifications (APCs), diagnosis-related groups (DRGs) and newer Medicare-severity diagnosis-related groups (MS-DRGs); and • the Medicare Modernization Act, HIPAA, OSHA, the EEOC and other regulations.
One must also consider the impact of current employee trends to high-deductible health care plans and private concierge medicine. Another consideration is employer shifts away from defined benefits plans to defined contribution plans.
Aggregating Or ‘Normalizing’ Financial Information: What You Should Know
In addition to possibly conducting employee interviews, one must gather appropriate financial information in order to properly value a practice. As a starting point, interested physician buyers should be able to see the following information for the most recent three-year period.
It is especially important to eliminate one-time, non-recurring practice expenses. These are adjusted for excessive or below normal expenses on the profit and loss statement. Such “normalization” can produce a big surprise for benchmark proponents and formula-driven advocates when a selling doctor runs personal expenditures through the practice that a buyer or court would not consider legitimate. Of course, one is less likely to encounter such shenanigans when the valuation is conducted according to professional USPAP and IRS style guidelines.
For example, we recall one doctor who painted his home and wrote it off as a valid business expense. Deleting other major expenses such as country club memberships make a practice look more profitable. This is good news if you are selling it. It is bad news if you are getting a divorce.
Conversely, you may have to defend legitimate business expenses that an appraiser may seek to normalize. For example, doctors may pay for a vehicle through their practice. If they use the vehicle to travel between multiple offices and hospitals, the expense may be legitimate.
Also realize that the appraiser may also add expenses that have not been incurred. For example, the appraiser may add an office manager’s salary if your spouse is in that role for free. This produces a lower appraised value and is common in small podiatry practices. Honorarium is another example that does not figure into value calculations.
Of course, normalization is a sophisticated and time intensive process. However, the expert earns his or her professional fee, and defends the resulting valuation range when challenged.
Keys To Selecting The Right Valuator Professional
The most important credentials to look for are fiduciary level experience, specificity and independence. Some doctors mistakenly turn to those who may have never appraised a practice before. Just because an appraiser has initials behind his or her name, it does not mean he or she understands the peculiarities of medical specialties. Agents, brokers, solicitors and other intermediaries are not fiduciaries.
Physicians looking to assess a practice for possible sale/purchase should only select an independent health economist, who will be your advocate under Securities Exchange Commission (SEC), IRS or other relevant managerial accounting guidelines.
Moreover, be very wary if the valuation is not done in an independent manner or, worse, performed for both parties simultaneously.
Essential Insights On Professional Fees And What You Can Expect
Of course, it is almost impossible to answer concerns regarding fees without specific information. The cost of a valuation can range from $0 to $50,000 for an onsite team of experts for behemoth practices and ambulatory surgery centers. Keep in mind that in most cases you want to ensure the value determination will stand up to IRS scrutiny so the $0 rule of thumb approach is not an option.
However, most reputable firms use a blended fee schedule of fixed and hourly rates (plus expenses). Internists should expect to spend approximately $5,000 to $10,000 for an average sized practice and a limited appraisal that is completely suitable for most internal activities.
External appraisals or poorly aggregated financial information, onsite reviews and litigation support services incur additional costs. However, most doctors find the money well spent. Expect to pay a retainer and sign a formal professional engagement letter.
Finally, once the practice price is agreed upon, sales contract terms and agreements present a plethora of financing challenges for both parties to consider. For example, one must negotiate bank loans (if they are even available), payment rates and length, personal promissory guarantees, down payment offsets, earn-out arrangements and Uniform Commercial Codes.
Final Notes
Do not be surprised if a sales broker does not consider the aforementioned issues as the modern health era emerges. Most agent-appraisers are predominantly concerned with earning commissions by working both transaction parties and may not represent your best interests. Also be aware that they are usually not obliged to disclose conflicts of interest and do not provide testimony as a court approved expert witness.
However, it is a fait accompli that medical practice worth is presently deteriorating. As the population ages and third-party reimbursements plummet, doctors are commoditized and traditional retail medicine is replaced by more efficient wholesale business models like workplace health clinics. The subprime mortgage default fiasco, credit freeze, potential tax reform law expiration, the ACA, VBC, capitation payments and the political specter of a nationalized healthcare system only add fuel to the macroeconomic fires of uncertainty. Do not forget the corona pandemic.
As a result, a good medical practice is no longer good business necessarily and retiring doctors can no longer automatically expect to extract premium sales prices. Moreover, uninformed young physicians should not be goaded to overpay.
Posted on July 29, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
MEDICAL EXECUTIVE-POST–TODAY’SNEWSLETTERBRIEFING
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Essays, Opinions and Curated News in Health Economics, Investing, Business, Management and Financial Planning for Physician Entrepreneurs and their Savvy Advisors and Consultants
“Serving Almost One Million Doctors, Financial Advisors and Medical Management Consultants Daily“
A Partner of the Institute of Medical Business Advisors , Inc.
Technology stocks were down last week but investors are encouraged by signs that 2024’s rally—which had been underpinned by a handful of Big Tech companies—is spreading to a broader swath of the market. For instance, the industrial focused Dow Jones Industrial Average has gained for four straight weeks, and the small-cap Russell 3000 is now up 14% this year. All eyes will be on the upcoming Federal Reserve meeting and the busiest earnings week of the season.
Donald Trump pledges to make the US “the crypto capital of the planet.” The former president pitched himself as the pro-crypto candidate in a keynote speech at the Bitcoin 2024 conference in Nashville. He told the audience that, if elected, he’d fire SEC Chair Gary Gensler (whom the crypto community accuses of waging a war on crypto) and install regulators friendly to digital tokens. He also said he’d create a strategic national crypto stockpile as part of a plan to make the US the “bitcoin superpower of the world.”
Consider two numbers: $568.34 and $60.09. The first is Zoom’s highest closing stock price, from October 2020; the second is its stock price today. That’s an 89% decline, caused by more workers heading back into the office (even Zoom employees) and competition from rival products by Microsoft and Google.
Visualize: How private equity tangled banks in a web of debt, from the Financial Times.
Posted on July 27, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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According to Wikipedia, front running, also known as tailgating, is the practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large (“block”) pending transaction that will influence the price of the underlying security. In essence, it means the practice of engaging in a personal or proprietary securities transaction in advance of a transaction in the same security for a client’s account.
Front running is considered a form of market manipulation in many markets. Cases typically involve individual brokers or brokerage firms trading stock in and out of undisclosed, unmonitored accounts of relatives or confederates. Institutional and individual investors may also commit a front running violation when they are privy to inside information.
A front running firm either buys for its own account before filling customer buy orders that drive up the price, or sells for its own account before filling customer sell orders that drive down the price. Front running is prohibited since the front-runner profits come from nonpublic information, at the expense of its own customers, the block trade, or the public market.
Citron Research founder Andrew Left is used to being the one calling out fraud, but federal prosecutors and the SEC claimed he’s the one pulling a financial fast one. The government alleges that Left committed securities fraud by using his appearances on television and his social media accounts to make misleading statements that manipulated the market—and reaped $16 million in profit for doing so.
Left declined to comment to news outlets, but his lawyer told the Wall Street Journal that the government’s cases were “based on a defective theory” and targeted Left for sharing his opinions.
Posted on June 11, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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A security, most simply, is a financial instrument traded for profit. They form the basis of investment contracts for thinks like equities, debt, and derivatives.
The SEC points to the Howey Test to determine if an asset can be classed as a security. This test has four prongs, all of which need to be passed to be determined a security: [1] An investment of money [2] in a common enterprise [3] with expectations of a profit [4] to be derived from the efforts of others.
In the US, if an asset is deemed to be a security it needs to be registered with the SEC. For example, an initial public offering (IPO) of a stock newly listed on the stock exchange represents the first offering of its freshly registered securities. Securities need to be registered as it gives the issuing company the relevant shareholder information to pay dividends and provide relevant stock-related information. It also helps reduce fraud by keeping on record the legitimate owner of the security.
According to the SEC, an unregistered security is simply one that hasn’t been rubber-stamped by the regulator.
Unregistered securities have been the subject of several scams, with the SEC saying their hallmarks include the promise of high yields with no risk, aggressive sales tactics, and are backed by unqualified investment professionals. As such, their use is limited.
Only accredited investors, defined as those with a net worth higher than $1 million or an annual income exceeding $200,000, can trade unregistered securities, essentially locking out most retail investors. The threshold is seen as a gauge of financial sophistication and suggests a buffer for eligible investors against potential losses.
A new report from the Google-owned cybersecurity firm Mandiant suggests several reasons for the increase in attacks. “First, there has been a resetting of the cybe rcriminal ecosystem after a tumultuous year in 2022, an influx of new actors conducting attacks, new partnerships between existing groups, and members of disrupted, prolific ransomware groups such as Conti starting up their own RaaS operations. While the attacks in 2023 largely followed the same patterns as the previous year, there were some notable changes with several groups trialing new tactics, techniques, and procedures.
For example, to increase the pressure on victims to pay, attacks on healthcare providers saw extortion demands issued to patients whose data were stolen, threatening to publish their medical data if they did not personally pay a ransom. The ALPHV group created a searchable database to make stolen data more accessible, and threats were issued to report attacks on publicly traded companies to the Securities and Exchange Commission (SEC).”
Imagine how ransomware would affect your practice if the extortion scheme bypassed you to directly threaten your patients – and blamed you for not paying the “reasonable” ransom demand.
Posted on May 28, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
Shopping Suggestions
By Rick Kahler MS CFP®
Shopping for a financial adviser you can trust has never been easy. The Department of Labor [DOL] rule requiring brokers to act in a fiduciary capacity when dealing with retirement plan assets has not made it any easier. The government’s intent was to help consumers clearly distinguish when financial professionals can be relied upon to give unbiased financial advice or when they are acting in their own interests to sell a financial product. Unfortunately, the rule has only exacerbated the confusion.
When shopping for financial advisers, you need to investigate their education, niche, process, compensation structure, and experience to see whether they are a good fit for your needs. Equally important, it’s up to you to do a background check and determine whose interest the adviser is looking out for. No one else will do it for you.
Two-Steps
Here are two important steps you can take to greatly increase your chances of getting someone who will truly be looking out for you.
First, ask any adviser you deal with to sign a statement affirming they will act in the capacity of a fiduciary to you, meaning you will be a client, not a customer. A copy of this form can be found at www.advisorperspectives.com. Advisers unwilling to sign the Form Adv are not likely to be fiduciaries who will put your interests first.
Second, check the adviser’s background. If advisers receive any type of fee, they are held to a fiduciary standard automatically by the SEC. Still, it’s wise to check their background for any misconduct, which you can do at www.adviserinfo.sec.gov. If advisers sell securities, mutual funds, private REITs, or limited partnerships and receive any type of commission, they will be regulated by FINRA. You can go to BrokerCheck.finra.org to view their records for misconduct.
It’s important to check an adviser’s background because being found guilty of misconduct doesn’t mean they can’t actively be selling financial products.
For example, in a March 7 article at kitces.com, financial planner and writer Michael Kitces points out that over 73% of FINRA-registered brokers who FINRA lists as having a misconduct “are still employed a year later, despite the fact that such brokers are a whopping 5x more likely to engage in misconduct again in the future.”
Kitces explains that while just 7.3% of all FINRA brokers have some type of misconduct on their records, only about half of them actually lose their jobs and about half of those find employment with another firm. Additionally, it seems some firms have more of a culture of employing brokers with misconduct.
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The top five brokerage firms with the highest (15% or more) concentration of brokers with misconduct are Oppenhiemer & Co, First Allied Securities, Wells Fargo Advisers Financial Network, UBS Financial Services, and Cetera Advisers. This is according to a working paper, “The Market for Financial Adviser Misconduct,” by Mark Egan, Gregor Matvos, and Amit Seru, business school professors at the University of Chicago and University of Minnesota. Geographic location also makes a big difference with the states of California, Florida, and New York having counties with much higher concentrations of brokers guilty of misconduct (15 – 30%) than states like Pennsylvania, Kansas, Iowa, Kentucky, and Vermont with the counties having the lowest concentration (2 – 3%).
Kitces reminds us that the “single greatest predictor of whether a broker will engage in misconduct is whether he/she has engaged in any prior misconduct.”
Assessment
For this reason, it’s crucial to make FINRA’s Broker Check part of your research before hiring a financial adviser. Before trusting any adviser to put your interests first, look out for your own interests by investigating the adviser’s history.
Conclusion
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A Primer for Physician Investors and Medical Professionals
By: Dr. David Edward Marcinko; MBA, MEd, CMP™
[Editor-in-Chief]
[PART 2 OF 8]
NOTE: This is an eight part ME-P series based on a weekend lecture I gave more than a decade ago to an interested group of graduate, business and medical school students. The material is a bit dated and some facts and specifics may have changed since then. But, the overall thought-leadership information of the essay remains interesting and informative. We trust you will enjoy it.
Introduction
Despite the SEC restrictions, noted in Part I of this series, some idea of potential demand for a new security issue can be gauged and have a bearing on pricing decisions.
For example, as CEO of a medical instrument company, or interested investor, would you rather see a great deal of interest in a potential new issue or not very much interest? There is however, one kind of advertisement that the underwriter can publish during the cooling off period. It’s known as a tombstone ad. The ad makes it clear that it is only an announcement and does not constitute an offer to sell or solicit the issue, and that such an offering can only be made by prospectus. SEC Rule 134 of the 1933 Act itself, refers to a tombstone ad as “communication not deemed a prospectus” because it makes reference to the prospectus in the ad. Tombstones have received their name because of the sparse nature of details found in them.
However, the most popular use of the tombstone ad is to announce the effectiveness of a new issue, after it has been successfully issued. This promotes the success of both he underwriter, as well as the company.
Since distributing securities involves potential liability to the investment bank, it will do everything possible to protect itself. So, near the end of the cooling off period, a meeting is held between the underwriter and the corporation. It is known as a due diligence meeting. At this meeting they both discuss amendments that are going to be necessary to make the registration statement complete and accurate. The corporate officers, and the underwriters sign, the final registration statement. They have civil liability for damages that result from omissions of material facts or
Mis-statements of fact. They also have criminal liability if the distribution is done by use of fraudulent, manipulative, or deceptive means. Due diligence takes on a whole new meaning when incarceration from a half-hearted effort underwriting efforts can occur. The investment bank strives to ensure that there have been no material changes to the issuer or the terms of the issue since the registration statement was filed.
Again, as a physician, how would you feel if you were an investment banker raising capital for a new pharmaceutical company that had developed a drug product that was highly marketable. But, on the day after the issue was effective, there was a major news story indicating that the company was being sued for patent infringement? What effect do you think that would have on the market price of this new issue? It would probably plunge. How could this situation have been prevented? The due diligence meeting is more than a cocktail party or a gathering in a smoke filled room. Otherwise, the company would require specially trained people, to do a patent search lessening the likelihood of this scenario. At the due diligence meeting, work is done on the preparation of the final prospectus, but the investment bank does not set the public offering price or the effective date at this meeting. The SEC will eventually set the effective date for the registration and it is on that date that the final offering price will be determined.
Once the SEC sets the effective date, sales may be executed and money can be accepted by the investment bank. It is at this time that the final prospectus, similar to the red herring but without the red ink and with the missing numbers, is issued. A prospectus is an abbreviated form of the registration statement, distributed to purchasers, on and after the effective date of the registration. It is not the same as the registration statement. A typical registration statement consists of papers that stand more than a foot high; rarely does a prospectus go beyond 40 or 50 pages. All purchasers will receive a final prospectus and then it becomes permissible for the underwriter to provide sales literature.
In addition to the requirement that a prospectus must be delivered to a purchaser of new issues no later than with confirmation of the trade, there are two other requirements that healthcare executives investors should know.
90-day: When an issuer has an initial public offering (IPO), there is generally a lack of publicly available material relating to the operations of that issuer. Because of this, the SEC requires that all members of the underwriting group make available a prospectus on an IPO for a period of 90 days after the effective date.
4O-day: Once an issuer has gone public, there are a number of routine filings that must be made with the SEC so there is publicly available information regarding the financial condition of that issuer. Since additional information is now available, the SEC requires that, on all issues other than IPOs, any member of the underwriting group must make available a prospectus for a period of 40 days after the effective date.
In the event that the investment bankers misgauged the marketplace, and the issue moves quite slowly, it is possible that information contained in the prospectus would be rendered obsolete by the SEC. Specifically, the SEC requires that any prospectus used more than 9 months after the effective date, may not have any financial information more than 16 months old. It can however, be amended or stickered, with updated information, as needed.
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Syndication Among Underwriters
Because the investment banking firm may be underwriting (distributing) a rather large dollar amount of securities, to spread its risk exposure, it may form a group made up of other investment bankers or underwriters, known as a syndicate. The syndicate is headed by a syndicate manager, or lead underwriter, and it is his job to decide whether to participate in the offering. If so, the managing underwriter will sign a non-binding agreement called a letter of intent. .
If all has gone well and the market place is sufficiently interested in the security, and the SEC has been satisfied with respect to the registration statement, it is time for all parties to the offering to formalize their relationships with a contract including the basic understandings reflected in the letter of intent. Three principal underwriting contracts are involved in the usual public offering, each serving a distinct purpose. These are the: Agreement among Underwriters, Underwriting Agreement, and the Dealer Agreement.
In the Agreement Among Underwriters (AAU), the underwriters committing to a portion of the issue, enter into an agreement establishing the nature and terms of their relationship with each other. It designates the syndicate manager to act on their behalf, particularly to enter into an Underwriting Agreement with the issuer, and to conduct the offering on behalf of each of them. The AAU will designate the managing underwriter’s compensation (management fee) for managing the offering.
The authority to manage the offering includes the authority to: agree with the issuer as to the public offering price; decide when to commence the offering; modify the offering price and selling commission; control all advertising; and, control the timing and effectiveness of the registration statement by quickly responding to deficiency letters. Each underwriter agrees to purchase a portion of the underwritten securities, which is known as each under-writer’s allotment (allocation). It is normally signed severally, but not jointly, meaning each underwriter is obligated to sell his allocation but bears no financial obligation for any unsold allotment of another underwriter. This is referred to as a divided account or a Western account. Much less frequently, an undivided or Eastern account, will be used. Each underwriter is responsible for unsold allotments of others, based upon a proportionate share of the offering.
The above comments referred to firm commitment underwriting. Another type of underwriting commitment however, is known as best efforts underwriting. Under the terms of best efforts underwriting, the underwriters make no commitment to buy or sell the issue, they simply do the best they can, acting as an agent for the issuer, and having no liability to the issuer if none of the securities are sold. There is no syndicate formed with a best efforts underwriting. The investment bankers form a selling group, with each member doing his best to sell his allotment. Two variations of a best efforts underwriting are: the all-or-none, and the mini-max (part-or-none) underwriting. Under the provisions of an all-or-none offering, unless all of the shares can be distributed within a specified period of time, the offering will terminate and no subscriptions or orders will be accepted or filled. Under mini-max, unless a set minimum amount is sold, the offering will be terminated.
SEC Rule 15c2-4 requires the underwriter to set up an escrow account for any money received before the closing date, in the event that it is necessary to return the money to prospective purchasers. If the “minimum”, or the “all” contingencies are met, the monies in escrow go to the issuer with the underwriters retaining their appropriate compensation. In order to make sure that investors are properly protected, the escrow account must be maintained at a bank for the benefit of the investors until every appropriate event or contingency has occurred. Then, the funds are properly returned to the investors. If the money is to be placed into an interest bearing account, it must have a maturity date no later than the closing date of the offering, or the account must be redeemable at face with no prepayment penalty as regards principal.
Underwriter Compensation Hierarchy
As we have seen, in a firm commitment the underwriter buys the entire issue from the issuer and then attempts to resell it to the public. The price at which the syndicate offers the securities to the public is known as the public offering price. It is the price printed on the front page of the prospectus.
However, the managing underwriter pays the issuer a lower price than this for the securities. The difference between that lower price and the public offering price is known as the spread or underwriting discount. Everyone involved in the sale of a new issue is compensated by receiving part of the spread. The amount of the spread is the subject of negotiations between the issuer and the managing underwriter, but usually is within a range established by similar transactions between comparable issuers and underwriters. The spread is also subject to NASD [now FINRA] review and approval before sales may commence. The spread is broken down by the underwriters so that a portion of it is paid to the managing underwriter for finding and packaging the issue and managing the offering (usually called the manager’s fee); and a portion is retained by each underwriter (called the underwriting or syndicate allowance) to compensate the syndicate members for their expenses, use of money, and assuming the risk of the underwriting. The remaining portion is allocated to the selling group and is called selling concession. It is often useful to remember the compensation hierarchy pecking order in the following way:
Spread (syndicate manager).
Underwriters allowance (syndicate members)
Selling concession (selling group members)
Re-allowance (any other firm)
While the above deal with corporate equity, the only other significant item with respect to corporate debt is the Trust Indenture Act of 1939. This Federal law applies to public issues of debt securities in excess of $5,000,000. The thrust of this act is to require an indenture with an independent trustee (usually a bank or trust company) who will report to the holders of the debt securities on a regular basis.
Successful marketing of a new issue is a marriage between somewhat alien factors: compliance and numerous Federal, state, and self-regulatory rules and statutes; along with finely honed and profit-motivated sales techniques. It’s not too hard to see that there could be a real, or apparent, conflict of interest here. Most successful investment bankers have built their excellent reputations upon their ability to properly balance these two objectives consistently, year after year.
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Conclusion
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The investment profession has come a long way since the door-to-door stock salesmen of the 1920s sold a willing public on worthless stock certificates. The stock market crash of 1929 and ensuing Great Depression of the 1930s forever changed the way investment operations are run. A bewildering array of laws and regulations sprung up, all geared to protecting the individual investor from fraud. These laws also set out specific guidelines on what types of investment can be marketed to the general public – and allowed for the creation of a set of investment products specifically not marketed to the general public. These early-mid 20th century lawmakers specifically exempted from the definition of “general public,” for all practical purposes, those investors that meet certain minimum net worth guidelines.
The lawmakers decided that wealth brings the sophistication required to evaluate, either independently or together with wise counsel, investment options that fall outside the mainstream. Not surprisingly, an investment industry catering to such wealthy individuals, such as doctors and healthcare professionals, and qualifying institutions has sprung up.
EARLY DAYS
The original hedge fund was an investment partnership started by A.W. Jones in 1949. A financial writer prior to starting his investment management career, Mr. Jones is widely credited as being the prototypical hedge fund manager. His style of investment in fact gave the hedge fund its name – although Mr. Jones himself called his fund a “hedged fund.” Mr. Jones attempted to “hedge,” or protect, his investment partnership against market swings by selling short overvalued securities while at the same time buying undervalued securities. Leverage was an integral part of the strategy. Other managers followed in Mr. Jones’ footsteps, and the hedge fund industry was born.
In those early days, the hedge fund industry was defined by the types of investment operations undertaken – selling short securities, making liberal use of leverage, engaging in arbitrage and otherwise attempting to limit one’s exposure to market swings. Today, the hedge fund industry is defined more by the structure of the investment fund and the type of manager compensation employed.
The changing definition is largely a sign of the times. In 1949, the United States was in a unique state. With the memory of Great Depression still massively influencing common wisdom on stocks, the post-war euphoria sparked an interest in the securities markets not seen in several decades. Perhaps it is not so surprising that at such a time a particularly reflective financial writer such as A.W. Jones would start an investment operation featuring most prominently the protection against market swings rather than participation in them.
Apart from a few significant hiccups – 1972-73, 1987 and 2006-07 being most prominent – the U.S. stock markets have been on quite a roll for quite a long time now. So today, hedge funds come in all flavors – many not hedged at all. Instead, the concept of a private investment fund structured as a partnership, with performance incentive compensation for the manager, has come to dominate the mindscape when hedge funds are discussed. Hence, we now have a term in “hedge fund” that is not always accurate in its description of the underlying activity. In fact, several recent events have contributed to an even more distorted general understanding of hedge funds.
During 1998, the high profile Long Term Capital Management crisis and the spectacular currency losses experienced by the George Soros organization both contributed to a drastic reversal of fortune in the court of public opinion for hedge funds. Most hedge fund managers, who spend much of their time attempting to limit risk in one way or another, were appalled at the manner with which the press used the highest profile cases to vilify the industry as dangerous risk-takers. At one point during late 1998, hedge funds were even blamed in the lay press for the currency collapses of several developing nations; whether this was even possible got short thrift in the press.
Needless to say, more than a few managers have decided they did not much appreciate being painted with the same “hedge fund” brush. Alternative investment fund, private investment fund, and several other terms have been promoted but inadequately adopted. As the memory of 1998 and 2007 fades, “hedge fund” may once again become a term embraced by all private investment managers.
Photo by Alexander Mils
ASSESSMENT: Physicians, and all investors, should be aware, however, that several different terms defining the same basic structure might be used. Investors should therefore become familiar with the structure of such funds, independent of the label. The Securities Exchange Commission calls such funds “privately offered investment companies” and the Internal Revenue Service calls them “securities partnerships.”
Posted on April 19, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
MEDICAL EXECUTIVE-POST–TODAY’SNEWSLETTERBRIEFING
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Essays, Opinions and Curated News in Health Economics, Investing, Business, Management and Financial Planning for Physician Entrepreneurs and their Savvy Advisors and Consultants
“Serving Almost One Million Doctors, Financial Advisors and Medical Management Consultants Daily“
A Partner of the Institute of Medical Business Advisors , Inc.
If the practice makes a reasonable effort to collect from a patient who is experiencing financial hardship (e.g., job loss due to COVID-19), providers may be able to offer a discount (e.g., settle for 70% of the amount owed) without violating Stark Law, says Reed Tinsley, CPA, healthcare consultant in Houston, Texas. “But remember that just because even if someone doesn’t have a job, they could still have money,” he adds. “There are a lot of people out there with big savings accounts.”
Source: Lisa A. Eramo, MA, Keith A. Reynolds, Physicians Practice [4/3/24]
23andMe cofounder and CEO Anne Wojcicki wants to take the once-hot DNA company private. 23andMe said a Special Committee would evaluate the proposal in light of other options. The company’s valuation has tumbled since its stock market debut in 2021. The struggling DNA company once valued in the billions — was essentially worthless as of Wednesday.
But,shares soared Thursday less than three years after it began selling shares. Wojcicki told board members she is proposing to acquire the company in a potential go-private transaction, according to a filing with the Securities and Exchange Commission.
The S&P 500 index fell 11.09 points (0.2%) to 5,011.12; the Dow Jones Industrial Average® ($DJI) rose 22.07 points (0.1%) to 37,775.38; the NASDAQ Composite lost 81.88 points (0.5%) to 15,601.50.
The 10-year Treasury note yield (TNX) gained almost 5 basis points to 4.633%.
The CBOE Volatility Index® (VIX) dropped 0.22 to 17.99.
Weakness in chip maker shares pushed the Philadelphia Semiconductor Index (SOX) down 1.7% to a two-month low. Biotechnology and consumer discretionary shares were also among the weakest sectors. Energy companies eroded as WTI Crude Oil (/CL) futures dropped for a third straight trading day and closed at a three-week low.
The S&P 500 is on track for its third consecutive weekly decline, its weakest stretch since September, while the NASDAQ Composite appears headed for a fourth straight weekly slide.
Investment banking is so back. All of the biggest banks have reported their first-quarter 2024 results, and their earnings have been as good as, if not better than, expected. Higher interest rates ate into the spoils—Bank of America reported yesterday that its profit dropped 18% compared to the same period last year—but investment banking arms did well, especially since many banks increased their fees, and deal making and IPOs started to pick up again. But despite perking up, investment banking activity is still below where it used to be. Strong consumer spending also helped banks out, with credit card income rising and people and businesses continuing to need loans.
[PART 1 OF 8]
NOTE: This is an eight part ME-P series based on a weekend lecture I gave more than a decade ago to an interested group of graduate, business and medical school students. The material is a bit dated and some facts and specifics may have changed since then. But, the overall thought-leadership information of the essay remains interesting and informative. We trust you will enjoy it.
Introduction
The history, function and processes of the investment banking industry, and the rules and regulations of the securities industry and their respective markets, as well as the use of brokerage accounts, margin and debt, will be briefly reviewed in this ME-P series.
An understanding of these concepts is required of all doctors and medical professionals as they pursue a personal investment strategy.
INVESTMENT BANKING AND SECURITIES UNDERWRITING
New economy corporate events of the past several years have provided many financial signs and symptoms that indicate a creeping securitization of the for-profit healthcare industrial complex. Similarly, fixed income medical investors should understand how Federal and State regulations impact upon personal and public debt needs. For, without investment banking firms, it would be almost impossible for private industry, medical corporations and government to raise needed capital.
Introduction
When a corporation such as a physician practice management company (PPMC), or similar entity needs, to raise capital for growth or expansion, there are two methods. Raising debt or equity. If equity is used, the corporation can market securities directly to the public by contacting its current stockholders and asking them to purchase the new securities in a rights offering, by advertising or by hiring salespeople. Although this last example is somewhat exaggerated, it illustrates that there is a cost to selling new securities, which may be considerable if the firm itself undertakes the task.
For this reason, most corporations employ help in marketing new securities by using the services of investment bankers who sell new securities to the general public. Although the investment banking is an exciting and vital industry, many SEC rules regulating it are not. Nevertheless, it is important for all physician executives to understand basic concepts of the industry if raising public money is ever a possibility or anticipated goal. It is also important for individual healthcare investors to understand something about securities underwriting to reduce the likelihood of fraudulent investment schemes or ill-conceived transactions which ultimately result in monetary loss.
Fundamentals of the Investment Banking Industry
Investment bankers are not really bankers at all. The fact that the word banker appears in the name is partially responsible for the false impressions that exist in the medical community regarding the functions they perform.
For example, they are not permitted to accept deposit, provide checking accounts, or perform other activities normally construed to be commercial banking activities. An investment bank is simply a firm that specializes in helping other corporations obtain the money they need under the most advantageous terms possible.
When it comes to the actual process of having securities issued, the corporation approaches an investment banking firm, either directly, or through a competitive selection process and asks it to act as adviser and distributor. Investment bankers, or under writers, as they are sometimes called, are middlemen in the capital markets for corporate securities.
The medical corporation requiring the funds discuss the amount, type of security to be issued, price and other features of the security, as well as the cost to issuing the securities. All of these factors are negotiated in a process known as known as negotiated underwriting. If mutually acceptable terms are reached, the investment banking firm will be the middle man through which the securities are sold to the general public. Since such firms have many customers, they are able to sell new securities, without the costly search that individual corporations may require to sell its own security. Thus, although the firm in need of additional capital must pay for the service, it is usually able to raise the additional capital at less expense through the use of an investment banker, than by selling the securities itself.
The agreement between the investment banker and the corporation may be one of two types. The investment bank may agree to purchase, or underwrite, the entire issue of securities and to re-offer them to the general public. This is known as a firm commitment.
When an investment banker agrees to underwrite such a sale, it agrees to supply the corporation with a specified amount of money. The firm buys the securities with the intention to resell them. If it fails to sell the securities, the investment banker must still pay the agreed upon sum. Thus, the risk of selling rests with the underwriter and not with the company issuing the securities.
The alternative agreement is a best efforts agreement in which the investment banker makes his best effort to sell the securities acting on behalf of the issuer, but does not guarantee a specified amount of money will be raised.
When a corporation raises new capital through a public offering of stock, on might inquire from where does the stock come? The only source the corporation has is authorized, but previously un-issued stock. Anytime authorized, but previously un-issued stock (new stock) is issued to the public, it is known as a primary offering. If it’s the very first time the corporation is making the offering, it’s also known as the Initial Public Offering (IPO). Anytime there is a primary offering of stock, the issuing corporation is raising additional equity capital.
A secondary offering, or distribution, on the other hand, is defied as an offering of a large block of outstanding stock. Most frequently, a secondary offering is the sale of a large block of stock owned by one or more stockholders. It is stock that has previously been issued and is now being re-sold by investors. Another case would be when a corporation re-sells its treasury stock.
Prior to any further discussions of investment banking, there are several industry terms that’s should be defined.
For example, an agent buys or sells securities for the account and risk of another party, and charges a commission. In the securities business, the terms broker and agent are used synonymously. This is not true of the insurance industry.
On the other hand, a principal is one who acts as a dealer rather than an agent or broker. A dealer buys and sells for his own account Finally, the dealer makes money by buying at one price and selling at a higher price. Thus, it is easy to understand how an investment banking firm earns money handling a best efforts offering; they make a commission on every share they sell.
The Securities Act of 1933 (Act of Full Disclosure)
When a corporation makes a public offering of its stock, it is bound by the provisions of the Securities Act of 1933, which is also known as the Act of Full Disclosure. The primary requirement of the Act is that the corporation must file a registration statement (full disclosure) with the Securities and Exchange Commission (SEC); containing some of the following items:
Description of the business entity raising the money.
Biographical data regarding officers and directors of the issuer.
Listing of share holdings of officers, directors, and holders of more than 10% of the issuer’s securities (insiders).
Financial statements including a breakdown of existing capitalization (existing debt and equity structure).
Intended use of offering proceeds.
Legal proceedings involving the issuer, such as suits, antitrust actions or strikes.
Acting in its capacity as an adviser to the corporation, the investment banking firm files out the registration statement with the SEC. It then takes the SEC a period of time to review the information in the registration statement. This is the “cooling off period” and the issue is said to be “in registration” during this time. When the Act written in 1933, Congress thought that 20 days would be enough time from the filing date, until the effective date the sale of securities is permitted.
In reality, it frequently takes much longer than 20 days for the SEC to complete its review. But, regardless of how long it lasts, it’s known as the cooling off period. At the end of the cooling off period, the SEC will either accept the issue or they will send a letter back to the issuer, and the underwriter, explaining that there is incomplete information in the registration statement. This letter is known as a deficiency letter. It will postpone the effectiveness of the registration statement until the deficiency is remedied. Even if initially, or eventually approved, an effective registration does not mean that the SEC has approved the issue.
For example, the following well known disclaimer statement written in bold red ink, is required to be placed in capital letters on the front cover page of every prospectus:
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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During the cooling off period, the investment bank tries to create interest in the market place for the issue. In order to do that, it distributes a preliminary prospectus, more commonly known as a “red herring”. It is known as a red herring because of the red lettering on the front page. The statement on the very top with the date is printed in red as well as the statements on the left hand margin of the preliminary prospectus.
The cost of printing the red herring is borne by the investment bank, since they are trying to market it.. The red herring includes information from the registration statement that will be most helpful for potential medical investors trying to make a decision. It describes the company and the securities to be issued; includes the firm’s financial statements; its current activities; the regulatory bodies to which it is subject; the nature of its competition; the management of the corporation, and what the expected proceeds will be used for. Two very important items missing from the red herringare the public offering price and the effective date of the issue, as neither are known for certain at this point in time.
The public offering price is generally determined on the date that the securities become effective for sale (effective date). Waiting until the last minute enables the investment bankers to price the new issue in line with current market conditions. Since the investment banker uses the red herring to try to create interest in the market place, stock brokers [aka: Registered Representatives (RRs) with a Series # 7 general securities license – After a 2 hour multiple-choice computerize test, I held this license for a decade ) will send copies of the red herring to their clients for whom they feel the issue is a suitable investment. The SEC is very strict on what can be said about an issue, in registration.
In fact, during the pre-filing period (the time when the negotiations are going on between the issuer\and underwriter), absolutely nothing can be said about it to anyone. For example, if the regulators find out that your stock broker discussed with you the fact that his firm was negotiating with an issuer for a possible public offering, he could be fined, or jailed.
During the cooling off period (the time when the red herring is being distributed), nothing may be sent to you; not a research report, nor a recommendation from another firm, or even the sales literature. The only thing you are permitted to receive is the red herring. The red herring is used to acquaint prospects with essential information about the offering. If you are interested in purchasing the security, then you will receive an “indication of interest”, but you can still not make a purchase or send money.
No sales may be made until the effective date; all that can be used to generate interest is the red herring.
Conclusion
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OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES
The S&P 500® index (SPX) fell 3.21 points (0.1%) to 4,780.24; the Dow Jones Industrial Average® (DJI) gained 15.29 points to 37,711.02; the NASDAQ Composite® (COMP)rose 0.55 point to 14,970.19.
The 10-year Treasury note yield dropped about 4 basis points to 3.988%.
The CBOE® Volatility Index (VIX) fell 0.25 to 12.44.
Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research, noted that technology was one of few sectors to buck Thursday’s market weakness, as so-called mega-caps including Nvidia (NVDA) and Microsoft (MSFT) notched new record highs. Also, Amazon (AMZN), Google parent Alphabet (GOOGL), and Netflix (NFLX) each posted new 52-week highs, illustrating continued investor rotation back into that sector.
In other markets, the Securities and Exchange Commission (SEC) approved exchange-traded funds (ETF) linked to the spot bitcoin market late Wednesday. The spot market, also known as the cash market, refers to forums where commodities, securities, and other assets can be immediately exchanged between buyers and sellers. The move opens up a new crypto inroad for investors who might otherwise not want to hold actual bitcoin and looks like a potential bellwether event for individual investors and crypto itself. ETFs linked to spot bitcoin began trading today.
Bitcoin prices have nearly tripled since the start of 2023, reaching $47,000 earlier this month, partly reflecting anticipation of the SEC decision and amid hopes of easing interest rate policy.
Posted on January 11, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Inflation climbed from 3.1% to 3.4% in December, a sign the Federal Reserve will continue to have to wrestle consumer price growth down to its desired 2% level. Forecasts had been for a reading of 3.2%.
On a monthly basis, inflation hit 0.3%, while core inflation, which strips away the more volatile costs of food and energy, was 3.9%, down from 4% in November but ahead of forecasts for a reading of 3.8%.
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The Securities and Exchange Commission (SEC) officially approved spot bitcoin ETFs yesterday for the first time. The 11 exchange-traded funds will let old-school investors and bitcoin enthusiasts alike access the world’s biggest cryptocurrency without having to keep a long password for a crypto wallet.
The long-awaited win for the beleaguered crypto industry came after a false start on Tuesday, when someone hacked the agency’s X account that…didn’t have two-factor authentication enabled…and spuriously said the ETFs had been approved.
Crypto investors have been asking for spot bitcoin ETFs since roughly 2013, but the SEC has historically grimaced at the idea of inviting such a volatile asset into the financial system, concerned that a bitcoin ETF could be easily manipulated. Trading could begin as early as today.
Posted on January 10, 2024 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Everyone is waiting for the SEC’s decision, expected today, about whether it will allow spot bitcoin ETFs that would make buying the cryptocurrency easier and more accessible. But it seems someone wasn’t willing to wait it out!
After the SEC’s account posted to X yesterday that the ETFs had been approved, Chair Gary Gensler said on his own account that there had been no approval and the agency’s account was “compromised.” The false post briefly caused a spike in bitcoin prices.
Earnings before interest, taxes, depreciation, and amortization
A company’s earnings before interest, taxes, depreciation, and amortization is an accounting measure calculated using a company’s earnings, before interest expenses, taxes, depreciation, and amortization are subtracted, as a proxy for a company’s current operating profitability. Though often shown on an income statement, it is not considered part of the Generally Accepted Accounting Principles by the SEC.
Posted on October 1, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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The SEC’s new cybersecurity regulations went into effect last week. Most companies are “largely ready” to comply, Matt Gorham, senior managing director and leader of PwC’s Cyber & Privacy InnovationInstitute, told CFO Brew, “but that doesn’t mean there isn’t work to do.”
As their companies’ finance leaders, CFOs are instrumental in determining whether a cybersecurity incident is material, but they have other roles to play as well. Gorham shared his advice for how CFOs can help their organizations comply with the new regs. Now, aAs a reminder, the regulations consist of what Gorham refers to as three “buckets.” Companies that file with the SEC are required to:
Declare any material cybersecurity incidents to the SEC on Item 1.05 of Form 8-K within four business days of determining materiality
Disclose information about their cyber risk management and strategy on a new section of the 10-K called Item 1C
Disclose information about their boards’ and management’s role in overseeing cybersecurity risk
The first two “buckets,” Gorham said, will likely require the most work to comply with.
Posted on September 11, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
The Securities and Exchange Commissionapproved a funding proposal for the Consolidated Audit Trail (CAT), a database designed to allow regulators to monitor all activity and trades in the US equity market.
Up until now, regulators “lacked a consolidated view of the material information” of National Market System securities “to trace orders from originations, modifications, cancellations, routings, and executions,” according to SEC Chair Gary Gensler, who supported the proposal.
With the new proposal, though, brokers will largely be footing the bill. So, while the plan was approved by three of the five commissioners, it’ll face an uphill battle to win approval from broker and asset manager-adjacent trade groups.
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According to a report by Bloomberg, Wells Fargo & Co. has received federal approval for a $1 billion settlement in a shareholder lawsuit concerning unauthorized customer accounts. However, U.S. District Judge Jennifer L. Rochon greenlit the settlement after a hearing in New York, bringing the bank’s total payouts for the scandal to nearly $5 billion. The lawsuit, filed in 2020, accused former CEO Tim Sloan and other executives of misleading investors and the public about the bank’s regulatory interactions following a 2016 scandal.
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Instacart is aiming to go public at a valuation between $8.6 billion and $9.3 billion, according to reports from The Wall Street Journal and Reuters.
The initial figures reflect a striking departure from what Instacart was worth in the past.
The company’s stock is expected to trade on the NASDAQ under the ticker “CART,” and Goldman Sachs is leading the offering.
Instacart is expected to officially disclose its expected IPO valuation range today.
Posted on August 30, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Bitcoin gets a boost from landmark ETF ruling
An appeals court said the SECwas wrong to reject an application from crypto investment firm Grayscale to create a spot bitcoin exchange-traded fund (ETF), sending the price of bitcoin up about 6.5%.
The slumbering crypto industry has been eagerly anticipating a spot bitcoin ETF (as opposed to existing crypto ETFs based on futures) because it could attract a torrent of cash and interest from individual investors. The SEC said it was reviewing the decision.
Posted on August 27, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
Jerome Powell: Speaking at the Jackson Hole Symposium, an annual meeting of central bankers from around the globe at a former Wild West outpost, the FOMC chair said inflation “remains too high” and “we are prepared to raise rates further if appropriate” and to keep them high. So, why didn’t the stock market nose-dive like it did after last year’s similarly hawkish Powell speech? It helps that inflation has come down considerably since then (which Powell acknowledged) and that he nodded to the dangers of the Fed doing too much as well as too little.
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Rite Aid is preparing to file for bankruptcy in the face of costly lawsuits over its sales of opioids, the Wall Street Journal reports.
Wegovy, the weight-loss drug, also helps prevent heart failure, its maker, Novo Nordisk, said after a clinical trial.
Wells Fargoagreed to pay $35 million to settle the SEC’s claims that it overcharged fees on nearly 11,000 investment advisory accounts—claims it neither admits nor denies.
Posted on August 11, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Several US financial firms, including multiple Wells Fargo companies, will pay a combined $549 million in fines after admitting they couldn’t produce discussions about company business from smartphone messaging apps used by their employees, “including those at senior levels.” Both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) fined banks for being unable to produce discussions going back to at least 2019. The regulators say employees used their personal devices to discuss official company business via apps like iMessage, WhatsApp, or Signal and that those “off-channel communications” weren’t “maintained or preserved.”
Not keeping records of those conversations violates the 1934 Securities Exchange Act’s record keeping rules, as well as similar rules from the Investment Advisers Act of 1940, according to the SEC. The CFTC maintains its own record keeping requirements, which it says were violated.
The S&P 500 was up 1.12 points at 4,468.83; the Dow Jones Industrial Average (DJIA) was up 52.79 points (0.2%) at 35,176.15; the NASDAQ Composite was up 15.97 points (0.1%) at 13,737.99.
The 10-year Treasury note yield (TNX) was up about 10 basis points at 4.109%.
CBOEs Volatility Index (VIX) was down 0.07 at 15.89.
Communication services and transportation shares were among the strongest performers Thursday. Energy stocks slipped as crude oil futures tumbled more than 1.5%. Small-caps were also under pressure, with the Russell 2000 (RUT) falling slightly.
Posted on August 8, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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Zachary Kirkhorn resigned last week as Tesla’s chief financial officer after 13 years with the electric car giant, according to a filing with the U.S. Securities and Exchange Commission (SEC). The SEC filing show Kirkhorn, who also held the playful title of “Master of Coin,” stepped down on August 4th as Tesla’s CFO. Kirkhorn has served in different finance positions since 2010 and was appointed to CFO in 2019, according to Tesla’s website.
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Here is where the major benchmarks ended:
The S&P 500 Index was up 40.41 points (0.9%) at 4,518.44; the Dow Jones Industrial Average (DJIA) was up 407.51 points (1.2%) at 35,473.13; the NASDAQ Composite (COMP) was up 85.16 points (0.6%) at 13,994.40.
The 10-year Treasury note yield (TNX) was up about 3 basis points at 4.093%.
CBOE’s Volatility Index (VIX) was down 1.29 at 15.81.
Financials and Communication Services were among the best-performing S&P market sectors, while energy shares pulled back as crude oil futures fell nearly 1%. Small-cap stocks were also lower, with the Russell 2000 Index (RUT) easing slightly.
Posted on June 6, 2023 by Dr. David Edward Marcinko MBA MEd CMP™
By Staff Reporters
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The Securities and Exchange Commission sued cryptocurrency platform Coinbase today, charging the company with operating an unregistered securities platform and brokerage service. The lawsuit comes a day after the SEC filed charges against Binance, below.
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Cryptocurrencies and shares in crypto and blockchain-related companies tumbled yesterday after the U.S. securities regulator sued crypto exchange Binance, another blow to the industry. The U.S. Securities and Exchange Commission sued Binance and its CEO Changpeng Zhao for secretly controlling Binance.US as part of a “web of deception” to evade U.S. laws, among other charges. Reuters earlier reported that Binance controlled its US affiliate’s bank accounts, despite claiming it was independent.
The SEC also said Binance artificially inflated trading volumes on the platform, diverted customer funds and failed to restrict U.S. customers from its platform and misled investors about market surveillance controls.
Bitcoin, the world’s biggest cryptocurrency was down 5.45% after falling to its lowest level since mid-March following the news. Binance’s cryptocurrency fell 9.72%.
Under law, financial advisors and planners must provide you with a form ADV Part II or a brochure that covers the same information. Even if a brochure is provided, ask for the ADV. While it is acceptable, even desirable, for the brochure to be easier to read than the ADV, the ADV is what is filed with the appropriate state or SEC. If the brochure reads more like a slick sales brochure or the information in the brochure glosses over the items on the ADV to a high degree, one should consider eliminating the advisor from consideration.
Registering with a state or SEC gives an advisor a fiduciary duty to the client. This is a high standard under the law.
There are several types of advisors who are exempt from registering and filing an ADV.
First, there are registered representatives (brokers). Brokers have a fiduciary responsibility to their firms regardless of whether they are statutory employees or independent contractors. Not the client.
Second are attorneys and accountants whose advice is “incidental” to their legal or accounting practices. But, why would one hire someone whose advice is “incidental” to his primary profession? A top-notch advisor is a full-time professional and should be registered. One should insist that their advisor be registered.
The ADV will describe the advisor’s background and employment history, including any prior disciplinary issues. It will describe the ownership of the firm and outline how the firm and advisor are compensated. Any referral arrangements will be described. If an advisor has an interest in any of the investments to be recommended, it must be listed as well as the fee schedule. There is also a description of the types of investments recommended and the types of research information that is used.
ASSESSMENT: A review of the ADV should result in an alignment of what the advisor said during the interview and what is filed with the regulators. If there is a clear discrepancy, choose another advisor. If it is unclear, discuss the issue with the advisor.
Your thoughts and comments are appreciated.
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