The Derivative Project

Labor Day 2015: Progress from the White House, Barriers from Media Increase

Labor Day 2015:  Progress from the White House, Barriers from Media Increase

Labor Day 2015: Progress from the White House, Barriers from Media Increase

Lack of Transparency on Cost-Effective Retirement Investment Selection is Fueled by Wall Street’s Advertising that Controls Media and Consumer Message

Labor Day 2014, The Derivative Project wrote on the loss of defined benefit pensions and the emergence of intermediaries that are siphoning off billions from American’s retirement nest eggs, without adding any value.  How is this happening, given principles of capitalism?

(1) Billions of dollars of advertising and “sponsored content” at major media organizations are confusing the American people and prohibiting the transparency that capitalism mandates.  The Public Investors Bar Association issued a report in 2015 on the dangers of conflicted advertising and the conflicting role when “fiduciary” claims are arbitrated.

(2)  Financial education on how to select registered investment companies under the Investment Advisers Act of 1940 is taught by Wall Street or non-profit financial education entities funded by Wall Street firms, that are promoting non-transparent fees and no performance prior to 401k investment selection, as criticized by the Government Accountability Office (GAO) in this 2014 Report.

(3)  Wall Street is the ERISA Advisor to the Department of Labor and is controlling transparency as to fees and performance mandated by ERISA and securities laws.  Americans have been mislead by their employer on investment options, which have not been selected in the employee’s best interest, as the recent Boeing settlement implies and Tibble v Edison Supreme Court decision confirm.

2015: Progress from President Obama’s Report on Exposing the 40-year Issues that Siphon off Retirement Savings

In February 2015, President Obama’s Council on Economic Advisors, took a stand and published the very first report on how much money is being siphoned off from American’s nest eggs through these redundant intermediaries:  $17 billion annually.  The Effects of Conflicted Investment Advice on Retirement Savings.


The Effects of Conflicted Investment Advice on Retirement Savings


“This report examines the evidence on the cost of conflicted investment advice and its effects on Americans’ retirement savings, focusing on IRAs. Investment losses due to conflicted advice result from the incentives conflicted payments generate for financial advisers to steer savers into products or investment strategies that provide larger payments to the adviser but are not necessarily the best choice for the saver.”

What Is Media Doing About Helping American’s Understand How Much They May be Losing to Conflicted Intermediaries and misleading advertising?

If  media does not continue to get this story out to the American public and help them understand how to properly protect and manage their retirement savings, reports such as The White House’s on conflicted investment advice are meaningless.  Capitalism and democracy depend on an informed citizenry.  Journalists, academics and media are failing society overall without fair and balanced reporting.

Case Study:  StarTribune, Minneapolis Minnesota  “Class Warfare is Killing Off the American Dream“, by Doug Obey, September 6, 2015

The Derivative Project provides a counter point to the Star Tribune’s publication of Mr. Obey’s September 6, 2015 “article.”

Mr. Obey writes on September 6th, 2015 in an “article” published by the Star Tribune in their business section:

“I’m not denying the wealth gap exists. My contention is that these reports suggest there is something inherently wrong with this, that the top 1 percent are not paying their “fair share” or that they are somehow responsible for keeping the poor, poor and for shrinking the middle class. Nothing could be further from the truth and these reports promote socialism at best and, in the worst of cases, promote jealousy, resentment and hate.”

The financial services industry revenue now represents over 30% of GDP.  This is Contributing to a Shrinking Middle Class

Mr. Obey, financial planner on Class WarfareAs the White House report revealed one reason the middle class is shrinking is wages are stagnant, the middle class no longer has defined benefit pensions, and 1/3 to 1/2 of every dollar the middle class saves goes to intermediaries, such as Mr. Obey.

Questions for the Star Tribune

This “article” is not labeled “sponsored content”.  Did Mr. Obey pay to publish this article?

This article was on the front page of the Business section.  Is it news or an opinion piece?

What percent of Star Tribune advertising revenues come from the financial services industry that sells investment product to retirement investors?

Is this article intended to promote the financial advisor profession, without providing neutral reporting on potential issues with promotion of such “profession” for retirement savings?

Did you verify Mr. Obey’s registrations with the SEC or State of Massachusetts, where he appears to be registered as an investment advisor prior to publication of this article on September 6th?

Mr. Obey’s filings with the SEC/State of Massachusetts state:

He has his own firm, Karma Advisors LLC, two employees, and less than a million dollars under management.

He charges, in addition to the mutual fund fees and ETF fees, 2.5% for assets under management.  For example,  Mr. Obey would charge the retirement investor:

2.5% on $100,000 IRA or                          $2500  annual fee

1.5% average mutual fund fee                    $1500  annual average mutual fund gross expense ratio

This means a client of Mr. Obey’s would pay potentially 4% or more annually to hold a mutual fund.  On a $100,000 average IRA balance, a retirement investor would pay over $4,000 annually to own a mutual fund.  If returns are less than 5% annually,  the retirement investor is losing money and would be better off putting the money under his mattress in this instance.

In addition, the client must pay on top of these fees for portfolio turnover, custody fees, and brokerage fees.

Mr. Obey’s SEC ADV reveals he spends only 50% of his time in his role as an “investment advisor”, yet takes an annual fee to monitor clients’s investments, some on a discretionary basis.  He also is licensed to sell insurance and may receive commissions from his clients by also selling them life or medical insurance.  He also is licensed as a real estate broker.  He is a broker.  He is an intermediary, selling investment product.  The SEC registered investment advisor, at the mutual fund company, that Mr. Obey sells as in investment, is a fiduciary under the Investment Advisers Act of 1940, with no competing interests, who files regular audited performance a the SEC.  Mr. Obey does not file performance with the SEC.

What is Mr. Obey’s performance track record in selecting investments for his clients, that justify fees that may be 4%-5% annually?

The S&P 500 index, year to date, as of September 4, 2015 has lost 6.69%.  Add to that loss, Mr. Obey’s annual fees of around 5% with custody and trading, and the retirement investor has lost over 11.69% of their retirement nest egg.  Of course, Mr. Obey does not publish his investment performance, so this is just an estimate, using one index.  The retirement investors losses could be greater or could be less.  Without published, audited performance at the SEC, a consumer does not know their returns after all fees.

S&P 500 Index Year to Date

The Securities and Exchange Commission and State Securities Regulators are Paid by taxpayers to Monitor Registered Investment Advisors

The Securities and Exchange Commission (SEC) works with the States for regulation of registered investment advisers. If a SEC registered investment advisor manages assets under $100 million, they are monitored by their respective state regulators.

The SEC mandates that a registered investment adviser update their ADV, that discloses all fees and compensation to a customer, on an annual basis.  Here is a photo of Mr. Obey’s registration for Karma Advisors:

Photo of Karma Advisors Registration


The SEC mandates the ADV be updated and filed regularly with the SEC or State regulator on an annual basis:

SEC Compliance Requirements for ADV Annual Amendments

The SEC IARD system link to Mr. Obey’s ADV indicates that it has not been updated since 2011, a 4 year SEC violation.

Last ADV Amendment

Mr. Obey’s book, promoted by the StarTribune, Money and the Human Condition is described here at

Money and the Human Condition


Labor Day 2015

There are more cost-effective alternatives to offer the very best money managers to every American for their retirement savings, that do not contribute to a shrinking middle class.  “So much is at stake…”

However, media’s inability to provide a fair and balanced view of a very relevant public policy issue is concerning to the future growth of America’s middle class. By providing a platform for vapid promotion of non-transparent, redundant business models, that might not be in the best interest of society overall, may be deemed irresponsible “journalism” when such is not labelled “sponsored content” or placed in the Opinion or guest contributor section of the newspaper.

Taking charge and understanding fees and expenses and performance of one’s retirement investments is an individual responsibility.

However, the financial services’ industry’s ongoing promotion of the need for a salesman to manage retirement investments, fueled by their advertising dollars paid to media, is the advertising story of the 21st century. The consumer has been duped.  The fact this advertising message has escaped consumer scrutiny for over 40 years is worth a Harvard Case Study, although one suspects academics might also be conflicted, as The Derivative Project wrote here.  It may take some time for academics to provide the bona fide analysis of the 40-year advertising scheme that shook up the middle class.

2016 is an election year. Labor Day 2016 we predict will be the first time that the average American will truly understand the brilliant scheme to rob them of 1/2 of every dollar invested in a retirement account.  It is not just stagnant wages harming the middle class.  It is the stagnant wages, combined with the loss of defined benefit pensions, that have been replaced by a business model that gives 1/2 to 1/3 or every dollar saved to a Wall Street intermediary, with no return on the investment.

It has been a masterful advertising coup by the financial services industry, but the revenues from such a scheme, will soon erode as an informed citizenry wakes up from a 40-year slumber.