Get Our Blog
  • Eric Hahn

Two Deadly Wealth Management Assumptions

Financial scams are rolling off the assembly line double-time these days, as clients are sold products and services appealing to their post-crisis fears of volatility rather than their now-chastened esprit de greed.

Investors (and their advisors) are targeted easily by people promising “non-correlated” returns without market exposure or sophisticated hedges that will “protect” them from swings in the market. As though a market swing were a risk on par with a total loss of capital…and, of course, it is not.

The deadly assumptions investors make are myriad, but two classic ones came to the fore in this week’s headlines.

The first deadly assumption we’ll look at today:

The guy belongs to my church / temple / country club / ethnic group, of course he’ll look out for me.

Maybe he will, but is affinity a good enough reason to trust a financial advisor?

Journeyman quarterback Mark Sanchez found out the hard way that this sort of thinking can easily lead one into the arms of a predator…

From ThinkAdvisor:

Former New York Jets quarterback Mark Sanchez and other professional athletes said they were cheated out of millions of dollars in a Ponzi-like scheme orchestrated by an investment advisor who appealed to their Christian faith.

Sanchez and Major League Baseball pitchers Jake Peavy and Roy Oswalt were defrauded out of about $30 million, according to a recently unsealed U.S. Securities and Exchange Commission lawsuit in Dallas federal court. The athletes all used the same broker, Ash Narayan, formerly of RGT Capital Management. The advisor gained their trust through religion and their interest in charitable works, the SEC said.

The complaint alleges that the “advisor” steered client money into a private venture that he controlled, and when they balked or expressed concern, he forged documents to steer even more into the collapsing company:

In mid-2011, Sanchez agreed to make a $100,000 investment in TTR. Instead, Narayan forged documents and directed more than $7 million of Sanchez’s money to the ticket company, the SEC said. In total, Narayan transferred more than $33 million from all investors to TTR, earning almost $2 million in hidden compensation.

Getting bad advice is one thing, but if someone is going to go so far as to forge your signature, by definition there’s little you can do until the fraud comes to light. Which makes it doubly important to vet the advisor beforehand. “This other guy from my church uses him” is not vetting. Additionally,

understanding the advisor’s investment management philosophy before committing capital would also have saved a wary investor. If lots of private ventures are part of this discussion, then obviously your desire for a conservatively allocated portfolio is not going to be met.

Another deadly assumption:

This advisor works for a big, prestigious firm and the product is very sophisticated, I deserve this special access.

Structured products are a minefield for the wirehouse wealth management client because the firms’ “producers” are highly incentivized to sell them. Anything being pushed on the brokerage sales force by the home office is, by definition, perilous for the client. Because if it were so good, then no commission would be necessary – the product would be found by savvy investors and there would be no need for extra compensation. But structured products are unnecessary for most investors, although profitable for the firms that create them, hence the degree to which they’re sold to people.

As proof of this, you almost never hear of a fiduciary advisor recommending this stuff. It’s not even in the lexicon for a client-centric practice or an unconflicted advisor.

Today’s Wall Street Journal tells the story of a pair of brokers who believe they were tricked into selling one such product to their clients, which subsequently lost 95% of its value…

With clients complaining after the value of the notes plunged, the brokers secretly taped calls with executives at Merrill, left the firm for rival UBS Group AG and then filed a whistleblower complaint over the notes with the SEC.

The probe involves a product called Strategic Return Notes that Merrill sold over a number of months in 2010, raising about $150 million. Linked to a Merrill Lynch index tracking the volatility of the S&P 500 stock index, the five-year notes lost value rapidly after they were issued, as market volatility fell and the cost of buying the options upon which the notes were based rose sharply.

Again, here we see an exotic product meant to shield clients from volatility, which is a direct appeal to a client’s emotional issues and does nothing to answer the real challenge of retirement accumulation and income. You can sell “protection” with your eyes closed in an environment like 2010, with everyone’s nerves still frazzled by the Great Financial Crisis. And if there’s one thing you need to know about financial sales people and the arms dealers who supply them with product, it’s that they’re in the business of making and retailing what sells, not what’s actually needed.

Surely Merrill knows what they’re doing, right? They manage a trillion dollars!

This is a deadly assumption. You’re conflating brand name with expertise, marketing with mastery of the markets.

The two brokers in the Journal story, furious at the firm for allowing their clients to be hurt by something that was meant to be a hedge, begin taping conversations with people from the product side…

“The roll costs are far larger than we ever understood or were disclosed to us,” Merrill broker Glen Ringwall said, according to the transcripts of the calls he taped with colleague Mark Manion. “This is borderline crooked.”

“What you’d love to do is avoid customer complaint,” Mark Ryan, a manager at the firm, told Messrs. Ringwall and Manion. “We can’t just tell everyone, ‘Hey this is a defective product.’”

While this is an extreme example and not every structured product blows up, the bigger issue is whether or not they’re even necessary. And of course they aren’t. This doesn’t stop Wall Street wealth managers from selling between $40 and $50 billion of them a year, mostly to retail clients. The deadly assumption is that you, successful person, deserve a high level of sophistication in your portfolio, and that Wall Street knows what it’s doing. The misunderstanding between volatility and true risk plays a big part in why this happens.

Peter Lynch said that “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.” If your advisor’s answer to the potential for corrections or volatility is to sell you silly shit from outer space, then your follow up question should be whether or not he or she gets paid for the privilege of your having bought it.

Portfolio &
Money Management


Contact Us

4 Landmark Square - Suite 315
Stamford, CT 06901





ADV Part 2 | ADV Part 3 (CRS) Privacy Policy | Cyber Security Policy | Business Continuity Plan Client Secure Upload


Check the background of this firm on FINRA’s BrokerCheck.           


NS Capital LLC is a Registered Investment Adviser. NS Capital and its representatives are in compliance with the current filing requirements imposed upon registered investment advisers by those states in which NS Capital maintains clients. NS Capital may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. NS Capital’s web site is limited to the dissemination of general information pertaining to its advisory services, and through the NS Blog access to additional investment-related information, publications, and links.  Accordingly,  NS Capital’s web site on the Internet should not be construed by any consumer and/or prospective client as NS Capital’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.  Any subsequent, direct communication by NS Capital with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of NS Capital, please contact the SEC or the state securities regulators for those states in which NS Capital maintains a notice filing.  A copy of NS Capital current written disclosure statement discussing NS Capital’s business operations, services, and fees is available from NS Capital upon written request. NS Capital does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to NS Capital’s web site or incorporated herein, and takes no responsibility such content.  All such information is provided solely for convenience purposes only and all users should be guided accordingly.


Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by NS Capital), will be profitable or equal any historical performance level(s).


Certain portions of NS Capital’s web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, NS Capital (and those of other investment professionals) positions and/or recommendations as of a specific prior date.  Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendation(s).  Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from NS Capital, or from any other investment professional. NS Capital is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice. 


Rankings and/or recognition by unaffiliated rating services and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if NS Capital is engaged, or continues to be engaged, to provide investment advisory services, nor should it be construed as a current or past endorsement of NS Capital by any of its clients.  Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Each client and prospective client agrees, as a condition precedent to his/her/its access to NS Capital web site, to release and hold harmless , NS Capital’s officers, directors, owners, employees and agents from any and all adverse consequences resulting from any of his/her/its actions and/or omissions which are independent of his/her/its receipt of personalized individual advice from NS Capital.

© 2020-2025 NS Capital LLC. All Rights Reserved.