10 August 2018

Beware of Private Bankers offering 'products'

Any relationship with a Private Banker or Financial Adviser should be clearly defined. This applies in particular to the responsibility for investment decisions and performance. You either are fully in charge of all decisions - then you really need an execution-only broker, maybe an on line broker offering low commissions - or you give full discretionary authority to the banker/adviser.
The worst situation is where you get 'consulted' about any investment - in the worst case this is just a disguised sales pitch to make you invest in a 'product' that comes with a hefty commission for the banker/adviser. Even though quite a few jurisdictions prohibit these commissions (they can often be paid for as long as the client keeps the investment!) there are ways around these regulations. Firms set up in-house funds that come with fees or - even worse - create 'structured products' that come with opaque fees (and often risks that are not clearly discernible for the lay investor, however successful he/she may be in their own business). It is essential that investors get independent advice before and during the engagement of investment advisers. Fees, Risks and Performance can be monitored for a low annual or one-off fee.
No clear benchmarks, no capital protection, no stop-loss - these should set the alarm bells ringing for any investor/client.

Banks and Asset Management - do they mix well??

Many years ago the standing joke in the world of Investment Management were the captive Mutual Fund subsidiaries of the major banks. They were often used as dumping ground for the new bond or share issues that the parent bank found difficult to place.
Ever since PBA has been suspicious of Asset Management firms that were part of a financial conglomerate. While the regulation and prevention of conflicts of interest (Chinese Walls) has improved enormously it still pays to keep an eye on this potential problem. An independent assessment of costs (fees) and risks will prevent that your investments suffer from any conflicted advice.

Index Funds and ETF's - stay close to the Exit

Index Funds and ETF's may be a wonderful choice in the eyes of many investors - individuals and institutions alike. But one aspect gets not mentioned often enough: apart from the risk that you will be fully exposed to any market decline (how good are your market timing skills?) the relentless flood of money into these instruments/strategies also pushes the already expensive component stocks to an ever higher multiple. It creates a sort of Pentium mobile or self-full filling mechanism. The higher a stock like, say, Amazon climbs, the more money is allocated to this stock - as long as people want to allocate money to the asset class, the stock market in this case.

Academics and Bitcoin - a curious Mix

On a day when there is a report out about the confused approach of regulators regarding the $200 billion 'cryptocurrency' market another report caught my eye: Academics study the probability that bitcoin's price will fall to zero - in one day! But a similar calculation would be to find the probability that a meteor hits the earth and wipes out all life - interesting but pretty useless. Cryptocurrencies serve those in failed states quite well, in addition to criminals and tax cheats. Use your common sense!
How likely it is that bitcoin will become worthless? (CNBC)