Bloomberg: Wall Streeters Lose $2B in 401(k) Bet on Own Firms

Americans have taken astronomical hits to their retirement savings by Wall Street’s inability to manage their IRAs and 401(k)s. Today, Michael J. Moore of Bloomberg News reports more Wall Street ineptitude causing the instant loss of $2 billion dollars from 401(k)s.

This habit of careless trading, the wildly unpredictable stock indexes, and case after case of corruption and backhanded dealing are the reasons why A List Partners offers Americans a new way to get their money out of Wall Street and to start seeing solid returns again.

Here’s the article:

Bloomberg News

Wall Streeters Lose $2B in 401(k) Bet on Own Firms

By Michael J. Moore on July 09, 2012

Wall Street employees, who dispense financial advice to individuals and companies, aren’t following a basic investing tenet with their own money: diversification.

Workers at the five largest Wall Street banks saw the value of company stock in their 401(k) accounts, sometimes the biggest holding of those plans, decline more than $2 billion last year, according to annual filings. Those losses don’t include shares received as bonuses.

The 2001 collapse of Enron Corp. led to warnings that tying retirement funds to an employer’s stock could be more crippling when a company fails, resulting in the loss of both a nest egg as well as a source of income. Traders and bankers felt the pain of last year’s decline in revenue from job cuts and lower bonuses in addition to the shrinking of their 401(k) accounts.

“You’re already relying on that company for your job, your income, benefits and everything else,” said Chris Baker, co- founder of Carmel, Indiana-based Oaktree Financial Advisors Inc., which manages $100 million and primarily advises employees of drugmaker Eli Lilly & Co. “It’s not just another stock. It can magnify the impact on your personal finances if your portfolio takes a beating and your employer isn’t doing well.”

Current and former Morgan Stanley employees, who receive company shares to match their 401(k) contributions, held 24 percent of retirement assets in the firm’s stock before last year’s decline, the highest percentage of any of the banks. They lost $570 million in 2011 as the shares plunged 44 percent. 

Bank of America Corp. (BAC) (BAC) employees lost the most, $1.37 billion, as the lender’s stock dropped (BAC)58 percent last year. Workers at JPMorgan Chase & Co. (JPM) (JPM) and Citigroup Inc. (C) (C), both based in New York, also lost hundreds of millions of dollars. 

Company Stock


JPMorgan employees, some of whom received stock in the company until last year to match retirement contributions, devoted 18 percent of their funds to the lender’s shares at the end of 2010. Bank of America employees put 13 percent of their assets in the bank’s stock, while the figures for Citigroup and New York-based Goldman Sachs Group Inc. (GS) (GS) were 8 percent and 2 percent, respectively.

U.S. workers given the option of owning company stock held about 13.4 percent of their 401(k) assets in employer shares at the end of March, down from 22.4 percent at the beginning of 2006, according to data from Callan Associates Inc., a San Francisco-based investment-consulting firm.

Concentrated Position


Any amount exceeding 20 percent is deemed a concentrated position, said Jean Young, a senior research analyst at the Vanguard Center for Retirement Research, a division of Valley Forge, Pennsylvania-based Vanguard Group Inc., the biggest U.S. mutual-fund company. Baker said he advises clients to hold no more than 5 percent of their retirement accounts in their employers’ shares, and no more than 10 percent in any one stock.

“It’s almost like a gamble when you have that concentration of your retirement assets invested in your employer,” Young said. “Participants do not understand the risks they’re taking.”

Morgan Stanley, which owns a majority stake in Morgan Stanley Smith Barney, the world’s largest brokerage, is the only one of the five firms that matches retirement contributions with company shares. The bank gives employees $1 of its stock for every $1 put into a 401(k) plan, with a limit of $9,800 a year. Once they receive the shares, employees are free to move the funds into investments other than the stock, said Sandra Hernandez, a spokeswoman for New York-based Morgan Stanley.

Until last year, JPMorgan matched in stock unless an employee opted out. Now the company matches contributions with money invested in the same way as the employee allocates funds. The other banks provide a stock plan as an investment option.

Prudent Investment


Morgan Stanley is facing a lawsuit from former employees claiming that the firm’s stock wasn’t a prudent investment for their retirement accounts and that the risks associated with its shares weren’t disclosed adequately. The suits, beginning in December 2007, have been consolidated in federal court in New York, and Morgan Stanley in March filed a renewed motion to dismiss the complaint.

Bank of America, Citigroup and JPMorgan have faced similar lawsuits. Bank of America’s case was dismissed in 2010. Citigroup had one consolidated complaint thrown out in 2009 and faces other claims filed last year. JPMorgan settled for $10 million a suit brought over breaches of fiduciary duty in Bear Stearns Cos.’ employee stock-ownership plan. JPMorgan purchased Bear Stearns with assistance from the Federal Reserve in 2008…Read the rest here:



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