25 December 2010

Hedge Fund Performance - nothing to write home about

Morningstar reports that the average hedge fund was up 6.12 % for the year through November 30. Most performance numbers for Hedge Funds are difficult to interpret even for market professionals and the headline numbers in isolation are basically meaningless as there is no clearly defined yardstick against which to measure it. 6 pct compared to what? how was it achieved? what risks have been taken? Investors are strongly advised not to fall for simplistic sales patter.

22 December 2010

Many portfolios poorly structured

The portfolios of many investors are poorly structured. Their holdings are often concentrated in assets that are located in their home country or offer too much exposure to fashionable sectors or assets. To blame your investment adviser for such deficiencies means that criticism is addressed to the wrong target. Any financial services firm should control the asset allocation and investment strategy that is executed in individual client portfolios and should not leave these all-important decisions to the whim of individual customer service employees.

Do not blindly rely on regulators!

Investors are advised not to blindly rely on the fact that a financial services firm is regulated by some official institution such as the SEC in the USA or the FSA in the United Kingdom.While these two organisations may have somewhat sharper teeth than their mostly tame equivalents in other jurisdictions it does not mean that being regulated by them is an official seal of approval. The same can be said for any diploma, membership in a professional organisation or academic or other qualification the financial adviser may exhibit. One could even say that the more these are put into the foreground the more suspicious any potential customer should become as it may be a promotional tactic that is intended to impress and put wool over the eyes of the prospective client. Large organisations such as the 'universal' banks may appear to be safe at first glance but in their case they may trade too much on the belief that they are too large to fail. While they may indeed be safer in a moment of crisis that should not divert anyone from closely analysing their performance record.

17 December 2010

Are Financial Advisers listening to their customers?

As study by EDHEC as reported by the Financial News "revealed that when portfolios are designed for clients, private bankers take market factors into account more frequently than client requirements". In our opinion this distracts attention from the real problem that exists in the relationship between investors and their financial advisers. We mean the insufficient ability to measure the performance that is produced by the investment firm. Of course it is important to attend to the customer's wishes but this should not become a convenient smokescreen to excuse poor investment performance. For example, who can blame the portfolio manager for doing a bad job when the customer asked him to be 'careful'? Clearly stated performance benchmarks that are easy to monitor should be the essential building bloc for any investment mandate and all other aspects of the advisory relationship should be arranged around this cornerstone.

14 December 2010

Ireland, Hungary expropriate pension funds

The idea of putting one's savings into officially-sanctioned pension funds receives another serious setback when EU member states (or better their ineffective politicians) think that the only way they can save themselves from further fiscal and economic disasters of their making is the expropriation of pension funds that to all intents and purposes have been created to provide their beneficiaries with benefits during their years of retirement. Where are the regulators that are so busy sticking their noses into every aspect of our daily lives? Where is justice and democracy?

12 December 2010

Did you agree to 'The Protocol'?

Nearly 500 US financial service firms have agreed to follow the rules stipulated by the 'Protocol for Broker Recruiting'. This specifies what practices are permitted when a financial adviser changes employment and what proprietary information they are allowed to take from an old employer to a new one. It must be noted that no one has considered the role of the investor in such a situation and information can therefore be passed on without the investor having a say in it. We advise to be extremely careful when the adviser changes employment and not to let emotions get the better of your best interest. In particular, as we promote the idea that investment performance should be on a transparent basis to allow comparisons between financial service providers, we doubt that any individual adviser will really be able to make a meaningful contribution to the performance of any investment portfolio. If his performance is substantially different from the model portfolio of his employer the adviser should set up shop under his own name.

11 December 2010

And you think you can rely on your pension?

Pension cuts ruled out after backlash

for now your pension may be safe, but for how much longer?

10 December 2010

Are Structured Products Suitable for Retail Investors?

Those who understand advanced financial market concepts may read the whole paper but for the rest of our readers we provide the conclusion:
Equity-linked notes are complex, opaque and expensive - and the more complex and opaque they are, the more expensive they are. Even with the best disclosure materials and the most thoroughly trained and supervised registered representatives, it is unlikely that retail investors can understand the risk-return tradeoff and the costs being incurred in some of the complex equity-linked notes and structured products currently being marketed. (Are Structured Products Suitable for Retail Investors? by Craig McCann and Dengpan Luo, Securities Litigation and Consulting Group, 2006)

9 December 2010

Do you really need a 'comprehensive package of services'?

News that a major player in the international private banking world will offer clients of its new family office hub in Singapore a 'comprehensive package of services' causes us to remind readers that Private Banking Advisory argues for a long time that investors should focus more on transparent and clear performance records rather than on 'soft' aspects like the name of the tennis player who fronts the publicity campaign of the investment adviser or additional 'services' that would much better be provided at arm's length by professionals such as accountants, lawyers and tax experts.

3 December 2010

Who benefits from this bonus program?

When the head of a large wealth management organisation openly states that adjustments to the bonus program for financial advisers mean that they get more pay if they reduce discounts offered to their customers it demonstrates that the interests of clients and advisers in many financial service firms are far from being aligned. In the same interview the manager also admits that advisers are being asked to sell more products to their customers. This also is in many cases contrary to the best interests of investment clients. Both aspects underline the need for impartial and disinterested independent advice when dealing with brokers and financial service providers that are working on a commission basis.