June 10, 2004
Below is text from our complaint against Smith Barney and their brokers.
Please accept this as our Statement of Claim and Exhibits regarding brokers and management of our accounts held at Smith Barney. Our complaint consists of, but is not limited to, Negligence, Breach of Fiduciary Duty, Unsuitability, Failure to Execute, and Failure to Supervise on the part of Smith Barney management. We believe these actions to be in violation of NASD Section 2310 and NYSE 405 Rules and Regulations concerning the management of customer accounts.
In 2001/2002 our lump sum retirement funds were distributed and transferred to Smith Barney. In initial meetings with our advisor we described our modest investment experience and our desire for moderate growth and limited risk with our retirement assets. We understood that she would employ the proper fiduciary guidance to attain these goals responsibly relative to our risk tolerance in order to mitigate the loss of capital. However, her approach to allocating assets without regard to our stated objectives and risk limitations is at the center of this complaint.
Our Smith Barney advisor recommended fully loaded mutual funds that not only exposed us to domestic equity market risk, but also to foreign market and currency risks, such as the AF New Perspective Fund and AF Europacific Growth Fund, which compounded the losses we experienced in our retirement accounts. She was aware that the American Family funds were available to us in our 401k plans at no charge, but insisted that we purchase the funds through Smith Barney regardless of the fees of 3,500 for our accounts. After paying the fees and holding these funds, we incurred substantial losses.
We believe that our broker recommended only American Funds based on a commissions that she would receive from the Capital Group parent company. We have since discovered that Smith barney receives additional compensation from Capital Group as a top, if not the top, sales generating organzation. This conflict of interest cannot be in the best interests of the small investor who, in good faith, may have intrusted their life savings to such a broker.
List of American Family Funds purchased by Investment Advisor at Smith Barney
American Balanced Fund loss 1,539.74
American Mutual Fund loss 2,248.06
Fundamental Investors loss 2,490.38
Investment Co of America loss 2,206.57
New Perspective Fund loss 1,110.68
New World Fund loss 979.40
Capital Income Builder loss 1,067.91
Capital World Growth loss 1,018.25
Euro Pacific Growth Fund loss 1,379.49
Growth Fund of America loss 2,162.65
Investment Co of America loss 2,080.55
No other mutual funds were purchased or recommended to us.
Below is a list of American Family Funds that were available to us as no load in our 401k.
AF American Mutual
AF Capital World Growth
AF Fundamental Investors
AF Investment Co of America
AF New Perspective
AF Washington Mutual
We feel that Smith Barney should refund load fees that we paid for American Family funds and cover losses that were incurred do to these investments that were unsuitable in our retirement accounts as the same funds were available to us in our 401k account as no load and our advisor knew it. Of the thousands of funds available, we were sold only the Capital Groups American funds.
We believe it is due the additional compensation agreement between Smith Barney and the Capital Group that most influenced our advisors recommendations to us. Both broker and management at Smith Barney have demonstrated their complete lack of fiduciary responsibility in our case.
Further, it would be very helpful to unsuspecting small investors, if the SEC would require brokers working on commission, to have the word Sales in their titles such as Sales Advisor or Commissioned Sales Broker. Vague titles such as VP Investments or Senior Advisor only mislead the individual investor. This title change should be included in the rule to, in every case, help protect the customer from such self-serving broker/salespersons.