Consumers of Financial Products Should Continue to be Wary

By Fei-Lu Qian

Thought you were saving money by using a discount broker?  Well, maybe not.  It seems Wells Fargo is not the only financial firm that pushes its clients into other financial products and services.  According to an article published in the Wall Street Journal, some of the largest discount brokerage firms such as Fidelity, Schwab and TD Ameritrade have been pushing their “clients toward more-expensive products” through their armies of representatives called financial consultants.  Based on interviews of former employees from the three discount brokerage firms, the compensation practices in those firms “encouraged people to sell products that were more lucrative both for the firm and for the employee – and cost customers more.” 

For example, at Fidelity, representatives are paid 0.04% of the assets clients invest in products such as mutual funds and exchanged-traded funds, but they “earn more than twice as much, 0.10%, on choices that typically generate higher annual fees for Fidelity, such as managed accounts, annuities and referrals to independent financial advisers.”  Indeed, according to a former Fidelity employee who worked there for five years said “you had to lead off” with a Fidelity managed account if a customer had at least $50,000, “and if you didn’t you had to have a reason for it.”  Simply, “sales incentives not only enhance pay directly but also help representatives win ‘Achiever’ bonuses that can be” as much as $82,500 a year at Fidelity.  Similarly, at Schwab, “employees can win an award including a trip to such destinations as Florida or Hawaii.” 

The discount brokerages do not require their financial consultants to disclose about their potential incentives with clients.  Another former Fidelity employee cited by the WSJ believes that the fact that he earned more through compensation and bonuses from selling in-house managed accounts and advisory services, in his mind, “created a conflict.”  The conflict arises as a financial consultant is supposed to act as a fiduciary and act in their client’s best interests, but at the same time, the financial consultant is highly incentivized to push a client into managed account products that may not be in the client’s best interest.  The former Fidelity employee explained to WSJ, “If a target-date fund was suitable for a client’s situation for a client’s situation and a Fidelity managed account was also suitable, the fact that a managed account paid more created a conflict of interest and made it impossible to act in a true fiduciary capacity.”  

In short, when it comes to your money it continues to be “buyer beware.”

The Lab Results Show You're Being Charged Too Much

On behalf of Wolf Popper LLP

Blood and other lab tests are often part of annual physicals or routine diagnostic testing for hospital patients around the country. Because the tests are common, we might expect our insurance to cover the costs. But, what you were expecting to be a nominal fee similar to a co-pay turns into a bill for hundreds of dollars from the lab.

That depends on how your insurance company views the necessity of the lab tests and how prices are negotiated between hospitals, labs and insurance companies. Some companies cover lab work as a preventative or diagnostic treatment, but certain plans can be exclusionary, leaving the patient to pay whatever the lab considers the full cost of services to be, which often are exorbitant prices.

Blood is thicker than water, prices are as clear as mud

An investigation by ABC News in 2013 revealed that each diagnostic lab can negotiate its own rates with insurance companies, resulting in a variety of price points across the industry, even among "in-network" providers. Less-than-transparent methods of how a hospital categorizes different tests may also be contributing to high costs. In other cases, providers may be restricted in how much they can actually talk about prices and contracts, helping to create an inefficient market.

How can consumers handle these cloak-and-dagger tactics by labs and insurance companies? With some healthcare plans currently in limbo due to Congress' attempt to repeal and replace the Affordable Care Act (Obama care), understanding the costs related to insurance is more important now than ever before.

People seeking health care diagnostic testing have a right to know how much they will pay for services, but with a variety of companies using the system to hide costs, how can prices be assured? Also, the price of a test, and whether it will be covered by insurance, is oftentimes not communicated to a patient until after the test is run. Sticker shock may cause blood to boil in your arteries, but there is a way to keep ice in your veins through the process.

Blood in your arteries, ice in your veins 

When consumers are left without enough information to make the best decision for themselves, legal action can be taken to hold companies accountable for their misguidance. Consumer protection laws protect the rights of consumers and encourage corporate transparency.

Wolf Popper is representing consumers who believe they should not have to pay more than the rate negotiated by their insurance company for that service if their claim is not covered by their insurance company. Wolf Popper is representing plaintiffs in putative class actions against Quest and LabCorp to recoup alleged overpayments by consumers.

As a plaintiff in a consumer protection lawsuit, you have the opportunity to explain your situation to a judge and jury. Compensation is available through this process. Further, companies could be forced to be more transparent, resulting in a fairer marketplace for all.