JPMorgan Under SEC Investigation: Probe for Conflict of Interest


In yet another addition to the endless regulatory headwinds for JPMorgan Chase & Co. (JPM), the Securities and Exchange Commission (SEC.TO) is conducting a probe into the potential conflict of interests in its private banking division. The news was first reported by the Wall Street Journal.

The SEC is investigating whether JPMorgan’s sale of its in-house investment products to the private-banking clients has been inappropriately administered. This inquiry runs parallel to the one launched by the Office of the Comptroller of the Currency (OCC) several months ago.

Notably, although not confirmed whether the OCC probe is still on the run, yet it has prompted JPMorgan to offer improved investment disclosures to its private-banking clients.

Generally, banks can generate more fee income from selling in-house financial products to its private-banking clients. The SEC’s inquiry deals with how investment advisors of JPMorgan recommended investment products to their clients.

In case the investment advisors are registered with the SEC, they have to adhere to the fiduciary standard that requires them to recommend only those financial products that serves the best interests of the clients. Most investment specialists working with JPMorgan are bound by this fiduciary standard.

As of Jun 30, 2014, JPMorgan’s private banking unit had $383 billion of assets under management. The unit, with $10 million or more in investible assets, caters to the private-banking clients.

We believe that the ongoing inquiry will likely further enhance the disclosure standard at JPMorgan. This will surely aid private-banking clients to make more informed investment decisions.

JPMorgan currently carries a Zacks Rank #3 (Hold). Some better-ranked finance stocks include City National Corp. (CYN), BofI Holding, Inc. (BOFI) and Popular, Inc. (BPOP). All these stocks hold a Zacks Rank #2 (Buy).

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