JPMorgan Chase (NYSE:JPM) can't seem to catch a break. First, there was its infamous multi-billion dollar trading loss, then there was the United States Federal Energy Regulatory Commission's announcement it was investigating the bank over the manipulation of power prices. And if that wasn't enough, The New York Times published an article on July 2 suggesting the firm puts its interests ahead of its clients when it comes to the sale of mutual funds. Specifically, former brokers at JPMorgan say they were told to sell JPMorgan funds to clients even if there were better and cheaper options available. Anyone with a financial advisor that is employed by a bank, that sells its own funds, should think twice about the relationship. Chances are they're more interested in what they can make from you than what they can make for you.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Growth
Bloomberg ran quite a lengthy story in March that detailed JPMorgan's success in the mutual fund industry. According to Strategic Insight, the bank is the only one among Morningstar's list of the top 10 mutual fund companies. In 2011, it achieved the highest level of sales growth as a percentage of assets of any firm with assets greater than $50 billion. Because the bank remained profitable during the financial crisis, it was able to grow its mutual fund business by 160% between 2008 and 2011, while peers like Citigroup (NYSE:C) and Morgan Stanley (NYSE:MS) have long since divested their own proprietary funds, respectively. From a business perspective, you have to give JPMorgan a tip of the hat because it's going against the grain, which probably makes it easier to differentiate yourself from other banks. However, I think this doesn't change the fact it's a real conflict of interest to be offering supposedly unbiased "financial advice" while injecting your own funds into the mix. It hardly makes for a fiduciary relationship.

SEE: Mutual Funds Introduction

Can It Happen in Canada?
As a Canadian, this article worried me deeply. Recently, while sitting down for a Father's Day dinner with family and friends, the discussion turned to the Canadian banks and the relative strength vis-à-vis those in the U.S. Now, I'm no fan of Jamie Dimon, but the conflict of interest these former JPMorgan brokers speak of might already be happening in Canada. Consider for a moment that the Investment Funds Institute of Canada (IFIC), which represents the best interests of Canadian mutual fund companies, stopped publishing statistics about the assets under management (AUM) for individual companies in early 2011. Why did the IFIC stop this practice? At the end of 2010, five of Canada's six big banks including Royal Bank of Canada (NYSE:RY) were among the top 10 for AUM. That likely hasn't changed much in the past year-and-a-half. At the same time, Canadians pay the highest mutual fund fees in the world. You don't have to be a genius to realize these two stats might be inter-related. I think the banks have so much influence in Canada that it's not a stretch to think the banks lobbied to have the format changed to improve the optics of the situation.

SEE: 5 Ways To Measure Mutual Fund Risk

The Bottom Line
So what does this all mean for JPMorgan customers? It means you're likely paying too much for your financial advice and getting too little in return. Last August, JPMorgan was required by arbitrators to pay $373 million to American Century Investments (ACI) because the bank favored its own investments over ACI's. When the bank bought ACI's retirement plan services division in 2003, it agreed to promote ACI's mutual funds. However, JPMorgan broke the agreement choosing to promote its own products instead; hence the $373 million arbitration ruling.

According to Morningstar, 42% of its funds failed to beat the category average over a three-year period. Meanwhile, its assets have been growing exponentially. JPMorgan customers suffer while advisors selling Chase Strategic Portfolios get rich. Jamie Dimon's house of shame just keeps getting worse. If I were you, I'll sell my JPMorgan mutual funds immediately.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Products and Investments

    There's a Reason They're Called Junk Bonds

    The closing of Third Avenue Managemet's Focused Credit Fund is a warning to investors and advisors. Beware the junk.
  2. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
  3. Mutual Funds & ETFs

    The 3 Best Downside Protection Equity Mutual Funds

    Learn how it is possible to profit in a bear market by owning the correct selection of mutual funds that provide downside protection and opportunity.
  4. Mutual Funds & ETFs

    The 4 Best Lord Abbett Mutual Funds

    Discover the four best mutual funds administered and managed by Lord, Abbett & Co., LLC that offer investors a wide variety of investment strategies.
  5. Mutual Funds & ETFs

    The ABCs of Mutual Fund Classes

    There are three main mutual fund classes, and each charges fees in a different way.
  6. Mutual Funds & ETFs

    The 3 Best Vanguard Funds for Value Investors in 2016

    Find out which of Vanguard's value funds are the best for building a solid core-satellite value investing strategy for your portfolio.
  7. Mutual Funds & ETFs

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
  8. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  9. Investing Basics

    5 Questions First Time Investors Should Ask in 2016

    Learn five of the most important questions you need to ask if you are a new investor planning on starting an investment program in 2016.
  10. Mutual Funds & ETFs

    The 5 Best US Small Cap Value Index Mutual Funds

    Find out which index mutual funds do the best at investing in small-cap value stocks for higher potential returns at the lowest cost.
RELATED FAQS
  1. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  2. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  3. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  4. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  5. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
  6. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center