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Op-ed: What killed American Pensions Services?

By Larry Mulcock

First Published May 16 2014 04:24 pm • Last Updated May 16 2014 04:24 pm

The financial services industry is rife with conflicts of interest. The most recent example came to light April 24, when the Securities and Exchange Commission shut down American Pension Services (APS), a Salt Lake-based IRA custodian, and its owner, Curtis DeYoung, charging them with several violations including forging client signatures, sending out falsified statements, overvaluing client accounts and investing client funds without authorization.

I have always respected Mr. DeYoung as a competitor, and, like his 5,300-plus clients, was shocked at the charges. He is certainly innocent until proven guilty and we wish him well.

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But in some respects such alleged misbehavior is to be expected somewhere in the industry because the system is set up with incentives that can put the providers at odds with their clients whose best interest is supposed to be paramount.

Apparently, APS had two bank accounts into which it pooled all its clients’ cash. The bank sent APS two monthly statements, but APS did all the sub-accounting and prepared the individual client statements. The client did not get a separate statement from the bank to compare with APS’s statement, so there was no way to verify APS’s reported balances. Without an independent verification, it is easy to see how APS might have been able to falsify statements showing overstated values.

Why would custodians want to overstate account values?

APS’s annual custodial fees were based on a percent of assets in a client’s IRA account. If the account value went down APS’s fees go down — major conflict of interest.

The amount of work APS is required to do for their annual fee had nothing to do with the value of the account. It is basically the same for a $1,000 IRA as for a $1 million IRA. Yet, this practice of percent-of-assets-based fees has been entrenched for so long, and so many powerful and influential providers are making so much money, that it would be impossible to change, especially given their influence over the politicians and regulators, which is legend.

The lack of required transparency and accountability has led to fraud and embezzlement in many financial institutions, e.g. Independent Trust Corporation in 2000.

When you are selecting an IRA custodian, make sure that your funds will not be pooled, but kept in a separate segregated account and that an independent third-party statement is provided. Choose a custodian with a fixed fee, not one whose fees are based on your account size.

But who ever told you that?


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The financial services industry is riddled with such conflicts of interest. Many are actually part of the enabling legislation and subsequent regulations that are supposed to "protect" us. This timely example is only the proverbial tip of the iceberg.

It’s no wonder that even the most upright providers could be sorely tempted to put their own financial benefit ahead of their clients. Some do. A few get caught. And there is little chance to recover losses.

Government regulators and self-regulatory bodies, like the SEC, have proven to be only marginally effective, if not outright complicit. (Consider who is on the board of directors of the SEC? The very people the SEC is supposed to regulate — a case of the fox guarding the hen house.)

Buyers beware. Make sure that there are checks and balances in place to keep your financial institutions honest. There are ways to do this. However, this is not an easy task, since these same financial institutions are generally the primary source of such information — another big fat conflict of interest.

Larry Mulcock, Sandy, is a certified financial planner and investment adviser.



Copyright 2014 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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