Goldman Rips Off Non-Profits, Endowments, Foundations, And Charities

UPDATE: Goldman Furious Over Our Posting Insider’s Confession About Ripping Off Non-Profits

A Goldman Sachs trader recently told me that he constantly rips off endowments, charities, and foundations when they would call up and want to invest. “Whenever I hear it’s a non-prof, then you just ladle on the extra fees,” he told me.

That’s because he knew they were usually unsophisticated investors and wouldn’t do comparison shopping or know how to properly analyze a fee schedule. He justified it by saying it was, “their fault… when you only call up one place, what do you expect?”

To some extent he’s right. If you don’t shop around for your investments or learn to how to make sure you’re getting the best deal, you do set yourself up to be taken advantage of. If you’re getting into an actively managed fund, you better learn all about fees, loads, 12b1 fees, marketing fees, transaction fees, all the fees in the fee rainbow. Don’t think that because you’re a non-profit all of a sudden everyone puts on their happy hats and kid gloves and is going to help you out.

And if you manage the investing on behalf of a non-profit, endowment, foundation or charity, and have an account with Goldman, or any brokerage for that matter, and you’re not 100% certain you understand all the fees on your investment, now would be a great time to check them out.

It still doesn’t make what he does any righter. If you’re reading this, Goldman guy, you should really think about who you’ve become and what worse creature you’re on the path the turning into.

(Photo: Getty)

Comments

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  1. BuddyGuyMontag says:

    Is the artwork a not-so-subtle plug to watch Heroes tonight on NBC?

    • Rhayader says:

      @BuddyGuyMontag: We can only hope not.

    • stevejust says:

      Having been on both ends of this, here’s how I see it:

      Very few people who are employed at 501(c)(3)’s earn enough money themselves to know whether they’re staring at regular incidental fees or exoribatant b.s. fees.

      Many of the board members of the 501(c)(3)’s know better, and if anything this is a warning for all of us sitting on the boards of 501(c)(3)’s to take some time to look at the books and see what’s going on with the management fees of our non-profits.

      And maybe someone will read this and start a class action.

      The best part of this? Think about Paulson and his sidekick Neel Kashkari in charge of our $700 billion and where they came from when they were in the private sector…

  2. RodAox says:

    Karma is a B*tch…what comes around goes around…

    • sonicanatidae says:

      @RodAox:

      How is this Karma?

      The American Tax Payer is paying for this hubris/greed.

      • LinkRacer says:

        @sonicanatidae:
        Ehh, sayinh the American Tax Payer is paying for Goldman’s actions is like saying that you own the Girl Scouts because you bought some Thin Mints and Snickerdoodles last year during their fundraiser.

        American tax money is but a small piece of the invested capital in companies like Goldman and other investment banks. Unless you’re out there buying some stock, stop saying you own Wall Street because you pay taxes.

        • pigbearpug says:

          @LinkRacer: I’m pretty sure sonicanatidae was referring to the pending bailout of several large investment banks. Goldman is unquestionably exposed to the credit fiasco, and is therefore likely to receive billions. The initial plan to buy up toxic assets has been put on hold in favor of cash infusion where the Treasury injects cash by buying stock. So every American is, in fact, a stockholder.

      • RodAox says:

        @sonicanatidae: no more golden parachutes for this jerk… thats karma…

  3. m4ximusprim3 says:

    Paragraph 3: True that.

    Paragraph 4: A richer one. It’s easy to shut your scruples up by drowning them in a hot tub full of blackberry wine and D list models.

  4. Rhayader says:

    It’s their own fault? I call BS on that. Sure, it’s the smart move to become educated about the process before investing, but a lack of knowledge doesn’t justify victimization.

    That’s like a shoplifter saying it’s a store’s fault for keeping the merchandise out on the floor. A clueless store owner who, say, did not install electronic anti-theft measures would not make the criminal less culpable.

    • amhorach says:

      @Rhayader:

      Not quite comparing apples to apples there. It is more like going used car shopping and failing to compare interest rates for loans or questioning those weird fees that the dealer might try to stick onto the bill, like “extended unobtainium rustproofing” and crap like that.

      I just think people are more aware that the dealer is going to try and screw them, and more inclined to think that their investment broker is working for them.

      • Kishi says:

        @amhorach: No, it’s like when an elderly woman goes shopping for a car and the dealer decides to pile on fees and lousy interest rates, because they know it’s a person they can take advantage of.

    • Murph1908 says:

      @Rhayader:
      Big difference between your example and the story your example shows something that’s illegal, and the story is something that’s unscrupulous.

      It is not illegal for me to sell my box of cookies to someone for one price, then ask another price of you when you walk up and pull out a wad of 20s.

      It’s not illegal for a car salesman to ask you for one price, knowing he’d take a lower one.

      Your analogy is flawed.

  5. Noobs-R-Us says:

    This “trader” was probably one of the 3,200 Goldman employees given the pink slip last week.

    • SacraBos says:

      @Noobs-R-Us: Nah, that’s one of the traders they kept.

    • superbureaucrat says:

      eh, it’s their own damn fault. The caliber people that work at these 501(c)(3)’s are generally not the people that would think to shop around. I agree that this should not happen, but only if they would actually shop around.

      @Noobs-R-Us: This salesperson brings money into the firm. If the firm is downsizing, then they would want to keep people that are bringing money into the firm.

      @sonicanatidae: If you bother to actually look at things for what they are, you would realize that this isn’t money down the drain. The idea is that once credit is flowing again, investors will not need to sell off to meet liquidity needs, stock prices will recover, and home prices will stabilize. From there, it’s not too hard to put two and two together.

    • revmatty says:

      @Noobs-R-Us: Quite the contrary. All the firm cares about is generating income (fees). He probably got sizable bonuses. I worked in the same office as a few brokers who regularly churned accounts of less savvy clients in order to make the kind of income they wanted. For example, one of them routinely pulled in $18,000.00/month after taxes back in 1993 and as long as there weren’t too many complaints the branch manager and NY HQ were more than happy to ignore it. Once the lawsuits started really piling on when he got too greedy they finally fired him. He was picked up by a competing firm in the same building the next morning.

      • ADismalScience says:

        @revmatty:

        Churning is illegal, and if that firm had the compliance procedures of leading firms he would have been caught and canned well before clients were impacted. Furthermore, clients almost always win “churning” lawsuits given the problems most brokers have substantiating investment decisions to a jury.

  6. MaxSmart32 says:

    I wonder how many people have worked in a 501c3…I’ve spent the majority of my career working in them, and every single person is doing many, many things at once. And now to hear Ben say, “Oh, well, in addition to knowing how to do HR stuff, payroll, setting up tables and chairs, getting customers through the door, we also have to know all the ins and outs of investment?” No…please don’t blame the people who sacrifice a lot to make the world a better place ben…

  7. vastrightwing says:

    1) Salesman knows customer isn’t the steward of the money.
    2) Customer doesn’t care, it’s not his money.
    3) Greed tells the salesman it’s ok to rip off customer.
    4) Customer doesn’t care enough to find out who he’s doing business with.

    Not blaming the customer, just stating what happens in all sales situations: salesman is reading the customer’s ability to be taken. If you think this is “capitalism”, this is not. This is pure greed and laziness. You would not hand over your hard earned money to these people without doing some diligence to make sure they actually do what they say.

  8. chrisjames says:

    Unsophisticated? That’s a weak generalization. I’d say it’s the indifference of dealing in someone else’s money.

  9. Ein2015 says:

    “A fool and his money are soon parted.”

    I have it written down in my cubicle. :)

  10. Corporate_guy says:

    Isn’t the broker being used because the person doesn’t know about investing? This sounds like flat out theft.

    • custommadescare says:

      @Corporate_guy: I agree. Whether or not they know about investing, they are entrusting their money with a “professional”. As such, he should act professional and disclose all the fees.

      When the investor gets a look at what all the fees add up to, then they should know to walk away from this guy and go somewhere else (just like you should with a shady car dealer).

      It’s not like they are investing with some guy hanging out on the street corner.

      • m4ximusprim3 says:

        @custommadescare: In this market, at least you know where the guy on the corner is.

        We’re at 19 folded banks and counting in 2008, with the average retirement account down something like 30%. The guy on the corner isn’t looking too bad, espescially if he’s using your money to finance prostitution or drugs, which are the only growth industries left.

    • JustThatGuy3 says:

      @Corporate_guy:

      As I read this, it sounds like the trader (not broker, trader) in this case is talking about dealing with nonprofit institutional clients. In other words, someone from Duke’s endowment fund calls up and wants to buy $10MM of ExxonMobil stock. The trader’s saying that these endowments are less sophisticated as investors than his for-profit clients, and that doesn’t really surprise me. Generally, if you’re running endowment money, it’s because some combination of (a) you really love doing it, and are willing to earn less because of it (see Dave Swensen, the guy who runs Yale’s endowment), (b) you like the quiet life, or (c) you can’t get a job elsewhere. The smarter traders tend to end up in jobs with for-profit fund managers, since the money’s better. Generalizations, all, but with a basis in truth.

  11. Landru says:

    If they don’t know what they are doing, why don’t they just go to someone at a reputable firm?
    Oh, wait…

  12. LinkRacer says:

    Another reason why I never give to charity. They don’t know what to do with their money and end up squandering it away. Next time you think of giving money to charity, slap yourself and buy some Goldman Sachs stock.

  13. Norcross says:

    i don’t know, but it sounds like the GS person is full of shit. I help manage a lot of money for charities, foundations, etc and all of them go over their statements with a fine tooth comb and ask about EVERY fee, charge, etc. They don’t call some random GS person and say “Hi, I want to invest”.

    Also, if they are a smaller organization, then they prob. aren’t dealing directly with a GS trader. There is probably a broker in the middle, and THAT guy is getting the fees.

    • valsharess1 says:

      @Norcross: Agreed. I’ve worked in a lot of non-profits and there is usually a treasurer, executive director or some other person that does quite a bit of research and knows what we are being charged. Every penny counts and they make sure they are getting the most value out of their money.

  14. Hoss says:

    I suppose no one cares when someone at Burger King is found to have spit on someone’s sandwich and the story headline says “Burger King Adds Spittle to Your Lunch”. After all, it’s happend time and time again there. But this headline is abusive to Goldman Sach’s reputation. If someone is adding fees that are not on the schedule they should be punished. Youre suggesting that Goldman Sachs teaches traders to prey on nonprofits

    • Parting says:

      @Hoss: You have a point. However, don’t forget that all those brokers have quotas/fees, they have to reach… A fish rots from its head, not its tail.

  15. metsarethe... says:

    I’m not so sure I agree with this. I work in Asset Mgmt and EnF’s (Endowments and Foundations) are some of our saviest clients.

  16. wary_consumer says:

    Wait, you know this guys name and you aren’t telling everyone on this, ahem “consumer’s forum” what it is?

    What moral code are you invoking to hide this guy’s unethical (illegal?) behavior?

    “It still doesn’t make what he does any righter.”

    Man, if its not clear to you that his guy is an amoral parasite, and all you are able to do is tip-toe around it, then maybe you need to examine what kind of creature you’ve become

  17. wary_consumer says:

    And please, stop with the sensationalistic headlines.

    The correct headline for this article is “Goldman Sachs Employees Admits to Ripping Off Non-Profits, Endowments, Foundations, And Charities”

    It’s getting tiresome reading the headline, reading the article, then having to stop and reconcile the two.

    Plus, you’re killing the credibility of the Consumerist

    • edebaby says:

      @wary_consumer: legally, the employee is an agent of the company; consequently he IS the company as long as they keep him on staff. No need to differentiate his behavior from that of his peers; they know what he is doing.

      • wary_consumer says:

        I’m with you up to “No Need To”, and although I can’t agree with your cynical ‘verdict’, I can understand your desire to pass judgment even in the face of inadequate information

        It’s the difference Mr Popkin reporting on the results of a court case where the company was found guilty based on proven intention, knowledge or recklessness, and the fact of the matter which is spelled out explicitly by Mr Popkin: He stated he got this “confession” from an individual of the company.

        You are too quick to pass judgment with insufficient facts as is Mr Popkin with his misleading and sensationalistic headlines designed to do nothing more than pump up hits so his advertisers don’t flee

        There’s nothing wrong with pandering so long as you make it clear that’s what you are doing

        It’s obvious Mr Popkin is trying to pump up his “journalistic creds” with activities like his stint on CNBC. If he wants to move into the “big time”, I believe his behavior on this “blog” should match

        • ADismalScience says:

          @wary_consumer:

          Mr Popken is a consumer advocate – it is completely appropriate that he take this approach upon hearing this sort of information. That’s what advocacy is; taking a side and expressing the pure perspective of the advocated groups.

          A consumer advocate believes in a world where the buyer is completely protected; a corporate advocate believes in a world of caveat emptor. The real-world juncture of those two viewpoints is never going to be found in the headlines of a blog called “The Consumerist.” It’s simply the responsibility of commentors and other publications to represent other points of view. If you can’t stand it, well, don’t subject yourself to it!

        • Ben Popken says:

          @wary_consumer: Popken with an e. This lack of proper spelling betrays a tenuous, and dare I say, disgusting, grip on reality.

  18. frodo_35 says:

    Hoss if the crook fits give it a bailout. Trying to drum up any sympathy for any big money firm is not going to go over to well with most people. I am surprised no one has mentioned the pitchforks. Its scumbags like this guy that have ruined any good will toward wall street.

  19. Eyebrows McGee (now with double the baby!) says:

    “That’s because he knew they were usually unsophisticated investors and wouldn’t do comparison shopping or know how to properly analyze a fee schedule.”

    I often used to stifle mental sighs when dealing with certain kinds of charities (I dealt with a lot of religious organizations working with government grants at one point) because many of them seemed to be of the opinion that since Jesus liked them, accounting would magically take care of itself. And government regulations were for people who aren’t doing God’s work. You get a lot of people who are incredibly earnest and have great people skills, but whose practical followthrough is a bit lacking. There’s a real belief that good intentions will mean all errors will be forgiven.

    I understand the frustration of charities working with business-oriented professionals (accountants, financial advisers, lawyers) who have difficulty re-orienting their thinking towards the charity’s goals and often dismiss the charity’s concerns. But oy vey, people, good management is double extra important when you’re a charity!

    I’m disappointed, but not surprised, to see someone be so open about ripping charities off.

  20. quail says:

    Whatever just happened to plain old business ethics? Guess it’s not part of anyone’s MBA program anymore. Oh yea. These are they same guys who corn holed the world economy. Don’t expect much from them except for greed, huh? Is that what I’m to take away from this?

  21. Parting says:

    Well, someone is going straight to hell, man.

  22. frodo_35 says:

    Keep in mind all non profits are not in the lords name. It could be the man boy love association or some such crap. However as a rule ethics should keep a company from gouging people. Sadly profit overrides ethics nowdays. Even a crack dealer or pimp is a business man making a profit but that does’nt make it ok.

  23. kwsventures says:

    Why anyone would use a “full service” high fee brokerage firm is beyond my understanding.

  24. ADismalScience says:

    A trader working directly with clients? You mean a financial advisor, someone in sales.

    Did he give you any details on how he “ladles on fees?” This rings false. The most lucrative fees on Wall Street aren’t brokerage commissions – they’re embedded into “2/20″ hedge fund products.

    • zibby says:

      @ADismalScience: Stop talking sense already – hey, at least they didn’t call the guy a “banker”. As for the fees, who knows – maybe he’s just charging them full commission or something.

  25. ZalmanCamel says:

    LinkRacer,

    Donations to charity require the same due diligence that is required in investments. Find a charity where you know the people who run it (usually a local organization). In fact, you could volunteer and help one use its resources wisely!

  26. ADismalScience says:

    And since this is a perennial, irritating topic in which a few bad apples spoil the bunch:

    Yes, younger and occassionally older foolish brokers do this. But clients always, always catch on eventually, and then you’ve killed the golden goose. Brokers become successful in finance by doing right by their clients long-term. I work with UHNW and HNW clients all the time, and believe me – the most common requests we get are to reduce up-front commissions for “special clients.”

    The long-term incentives are structured to reward treating your clients well; there is nothing but short-term profit followed by long-term pain if you shaft people. It comes in the form of legal action, client loss, and de-certification by regulatory bodies. I’m not saying that some brokers don’t try to get some bps over on people, but ultimately this behavior is easily detected and rooted out by internal, external, and client-level disclosure/regulation.

  27. bmoredlj says:

    They’re FDIC insured now, right? They’re accepting deposits, right? Yet their slick’n’smooth website, and there doesn’t seem to be anywhere conspicuous where I can open a savings account. I wanna deposit $15 in the fancy NY bank! HOW?!

  28. Zephyr7 says:

    Although don’t doubt this is actually happening, that headline WAS misleading…

  29. Torley says:

    That guy holding the money and going “Shhh…” reminds me of Daniel Linderman. ‘Cept, that guy doesn’t have the healing touch.

  30. Anonymous says:

    Goldman Sachs through Managing Director David Lawrence empowered the Elder Abuse of its client Lillian Glasser. David Lawrence breeched his fiduciary duty to his aunt as he betrayed her and aquciesced to teh destruction of her life, her captivity in Texas drugged with massive doses of the chemical restraint Seroquel, and subsequent dissolution of most of her fortune in legal fees. David Lawrence esq who maintains a reputation and personna on Wall Street as head of the dirty tricks department for Goldman Sachs was complicit
    with his running dog, Jonathan Torop, Vice President of Private Wealth Management at Goldman Sachs.
    Any investigation of Goldman Sachs might well begin at the office of David Lawrence. Mr Lawrence should be held fully accountable for his role in the elder abuse of Lillian Glasser and his breech of fiduciary duty to Mrs. Glasser.
    This is not an anonymous post. Mark Glasser
    Miami, Florida.

  31. Anonymous says:

    I’ve never been in charge of non-profits’ investments but have professionally become acquainted with folks who are, and from my observation the characterization in this post is absurd. They are if anything astoundingly careful and thorough in their investment practices.

    Meanwhile as someone who routinely defends the blogosphere as being just as serious a news medium as mainstream journalism, I’m simply embarrassed by this post. What’s next here, the tale about how flashing your headlights in certain urban neighborhoods is a gang signal?