Bloomberg reports today on a lawsuit filed by Christ Church Cathedral of Indianapolis, which had a trust worth more than $30 million managed by JPMorgan. As the manager of a trust, the bank had a duty to act in the best interests of the church. Instead, the JPMorgan took the church's money and invested it in a galaxy of overly complex proprietary funds that served only to funnel fees back to JPMorgan. In other words, it sure does look like the bankers at JPMorgan systematically robbed a church in order to enrich themselves.
Think about it: the bank's duty is to act in the financial interests of the church. How does it do this? By investing their money in a simple, safe, low-cost portfolio of index funds? Not at all. That would hardly make any money for JPMorgan itself. Keep in mind that low-cost index fund investments are widely available that charge fees of well under 0.5% a year; even most mutual funds charge fees of well under 2% a year. Now peruse a few of the investments that the financial wizards at JPMorgan picked for this church and for other nonprofit trusts:
- An expensive "Highbridge Dynamic Commodities Strategy Fund," created by JPMorgan, which lost 17% over its lifetime before folding in 2014.
- Nearly 90 "structured notes" upon which "The bank and the notes' issuers may have charged fees of up to 11 percent of their value during the time they were in the trust."
- The "JPMorgan Blackstone Partners Offshore Fund Ltd., a "fund of fund of funds" with three layers of fees that together may have exceeded 8 percent."
Any honest financial adviser will tell you there is absolutely no reason for a nonprofit trust to be invested in such exotic and expensive and bad investments—except to benefit the bank doing the investing. It is robbery, of a church, by a bank, plain and simple. And how did JPMorgan do in its duty? According to Bloomberg and the church's lawsuit, over nearly ten years, with the church taking out about 5% of the trust per year, the trust's value fell from $34.6 million to $31.6 million. During the same time period, "the S&P 500 Index rose 64% and the BofA Merrill Lynch US Corporate & Government Index of bonds had a total return of 55%." The church's money could have been invested in those indexes for much, much lower fees than JPMorgan charged.
If you or your nonprofit institution needs to invest money, use Vanguard! They are cheap and far less likely to rob you.