29 November 2010

Madoff Fraud - the absurd gets even absurder

Not enough that regulators have ignored warnings about the Madoff Ponzi scheme for many years and that many advisers were negligent - if not fraudulent - when they advised 'clients' to put their money into Madoff-related investment vehicles, now even many of those investors among their customers who had made positive returns from their investments before Madoff crashed are being pursued by those same advisers for the return of their profits in order to allow the intermediaries to be able in turn to satisfy the claw-back demands of the bankrupty administrator (who in the meantime is running up an amazing amount of fees for himself). The lesson for the investor is: do not rely on anyone with a financial interest in your investments uncontrolled authority over your affairs without taking unbiased advice from a truly independent and trusted adviser - and do not wait for the regulators to help you either when things go wrong.

23 November 2010

Another Government grabs private pension savings

The Hungarian government takes a leaf out of Argentina's books and has announced that it intends to confiscate part of the private pension savings of its citizens. We have cautioned for a long time to consider all options carefully before relinquishing control over one's savings. The laws in most jurisdictions make it very difficult - often impossible - to withdraw funds from pension plans before a certain age. Even after retirement access is carefully prescribed. If the increasingly desperate governments in most countries can no longer be trusted any commitment of funds to pension plans should be carefully evaluated.

22 November 2010

Kafka alive and well in US Government

The absurd consequences of the obsession with fighting symptoms rather than causes and increasing the reach of government and civil servants at all costs is demonstrated by news (Wall Street Journal, 20 Nov 2010) that major US banks are intimidated enough to refuse to conduct business with a large number of foreign embassies in the USA. In countries such as the UK opening a bank account is a major burden for consumers and achieves no demonstrable benefit in terms of fighting crime or terrorism. The costs of complying with regulations that become more complicated by the day is immense, not only in direct costs related to the governmental enforcement agencies but also in terms of additional staffing in financial service firms.

12 November 2010

Lunatics running the asylum?

This expression comes to mind when reading the judgement concerning the repackaging of a repackaging of notes that represented an interest in an investment fund. Anyone who thinks that the activities described in the judgement represent more than a pass-the-parcel round trip designed to harvest fees at every stop at the expense of (which?) real investors may well be the right candidate to be sold in-transparent investment products in the future. Anyone who scratches his head and asks: 'What does all this have to do with sound long-term investment?' is well advised to be wary of overcomplicated investment vehicles and scrutinise the costs and risks associated with his investments very carefully.

9 November 2010

Are you a client or a customer?

The question at first may appear to be irrelevant but think again. If your financial adviser treats you as a clients he should have your interests at heart, if he treats you as a customer he probably will have more interest in his commission than in the performance of your investments. What lesson can you learn from this distinction? First of all, make sure that the financial incentives for your advisers are aligned with your own interests. Then beware of all 'products' that advisers try to sell to you. It is always better to measure the value of advice on a 'holistic' basis and be wary of piecemeal advice that comes in dibs and drabs and were the advisers are not responsible for the overall performance of your portfolio.

3 November 2010

Conflicts of interest at bank-owned funds

A new study highlights possible conflicts of interest at bank-owned funds. While the study co-authored by Jose Marin and Benjamin Golez focuses at Spanish institutions another 2008 study by Massimo Massa and Zahid Rehman found similar conflicts at a wider range of investment management firms affiliated with banks. These findings highlight the importance of independent financial advice.