28 April 2010

How 'independent' are financial advisors?

A new study by SEI discusses the concept of independence in the context of the money management business - with a special emphasis on retail investors and high-networth individuals. The study demonstrates that the customer of a money management firm has to understand the incentives of the advisor(s) in order to make sure that his portfolio is handled in the best possible way. When the chief executive of one of the leading investment banks and wealth managers states publicly that there is no moral obligation to take account of the customer's interests the importance of real independent advice becomes more relevant than ever.

20 April 2010

Hedge Funds treat customers in discriminatory fashion

When even Antonio Borges, chairman of the Hedge Fund Standards Board (no, this name is no joke, though it is a misnomer if there ever was one), voices concerns about preferential deals offered to some investors and states that he "may" ask his member firms to bolster disclosure to other clients of the risks the practice poses, the lack of regulation in the hedge fund industry is laid bare for all to see. The "worrisome" practice used by more and more hedge funds of giving some clients so-called "side letters" and charging them a preferential scale of fees clearly demonstrates that the compensation and fee structure of hedge funds needs to be watched carefully by investors. These separately-negotiated agreements, which have attracted the attention of the UK's Financial Services Authority (FSA) in recent years, offer different investment terms to certain clients, some of which could disadvantage other investors.  We wonder why the FSA has not yet acted to protect investor's interests.

6 April 2010

Be wary of forecasts and experts!

During a recent clean-out of the library I came across the following gem: In a review and comparison of the US and UK housing market published in 2005 the 'experts' came to the conclusion that 'there is no significant macroeconomic threat to home prices if our forecasts for interest rates and income growth pan out'. We can only say 'if the word if would not exist all forecasting would be much easier.