26 December 2012

2013 Investment Outlook

The only thing I will say about the Investment Outlook for 2013 is a warning. Rather than listen to the countless experts that will volunteer their free advice in the media you should first of all have a good look at their past performance. Checking their track record is no sure way to profits in the future but at least it will help you to weed out the 'Talkers' from the 'Doers'.

18 December 2012

How reliable are Fund Ratings?

When rating analysts at Morningstar give the thumbs up to nearly two-thirds of the funds they review it appears that their firm may be "less fund watchdog, and more fund lap dog." (MarketWatch Annual Lump of Coal Awards). Off-the-Shelf ratings are no substitute for independent advice and evidence that is based on actual investment performance without undue emphasis on 'subjective' judgements.

9 December 2012

Advisor conflicts - case study

As instructive article about possible the risks that you face when your financial advisors receive fees or commissions from the providers of financial products that they recommend for your portfolio (Motley Fool)

31 October 2012

How to protect your money

We repeatedly warn against the dangers presented by investment scams. A few simple rules (Marketwatch) should be enough to weed out the most obvious frauds but that leaves the question of how to make sure that investment advice you get from reputable firms is as good as is promised in the glossy brochures you receive from them. A key rule should be to always ask for their (published) performance record and make sure that the way your portfolio will be managed in way so that it will match the performance of the model or master portfolio. All-too-often individual advisers are left to handle the client's portfolios which means that different clients get wildly diverging investment results even as they are clients of the same firm. When the adviser gets hefty bonuses based on the commission he generates from the customer account there is an extra risk that your interests will not be served in the best possible fashion. Even worse is a situation where the financial adviser consults with you before making any investment decision. While this may flatter the ego of many a client it also gives the adviser an escape when things turn out badly. He will put the blame on you and 'the market' while happily pocketing his 'advisory' fee.

25 October 2012

Financial Trust Index

This interesting survey merits attention by all those who are dealing with financial institutions and markets. Many other (or most?) professions are held in similarly low esteem but it is always useful to avoid being all too trustful and not fall for the siren songs of smooth advertising and sales pitches.

Fund and Adviser Selection - Do not delude yourself

"An actively managed portfolio consisting of five funds held for 20 years had only a 2 percent chance of beating a comparable portfolio of index funds" says a new study by Richard Ferri (Forbes)

Wall Street 'Eat-what-you-kill' System

The claim by the ex-Goldman Sachs staffer Greg Smith should not surprise anyone. Business by definition features an inherent conflict between seller and buyer. While one looks to achieve the highest price possible the buyer wants the exact opposite. Competition (and a dose of ethics) provide the safety valve against the exploitation of customers. The egregious margins achieved in other sectors of the economy - luxury goods for example - could easily also be accused of 'eating and killing' the customers. The lesson that should be learned by all investors - be they small or large individual investors or 'sophisticated' institutions - is that 'buyer beware' is essential when considering to enter into financial transactions, - especially when the other side possibly has an information advantage and is incentivised to exact the maximum possible gain from the counter party.

22 October 2012

Are you destroying your Wealth?

An interesting new study documents the mistakes that individual investors make when they invest. Unfortunately the professional investment advisers more often than not commit the same errors and also need to be closely supervised to avoid unpleasant surprises.

14 October 2012

ETF Gold does not equal Gold

Many Investment Pundits recommend Gold as the ultimate protection against currency depreciation. So investors often are tempted to buy Gold-themed ETF's as they are convenient to buy and sell. But apart from fine differences between all the available ETF's that are linked to the price of Gold investors should also be aware of possible pitfalls (The Market Oracle) that are inherent in the way some of these ETF's are structured.

11 October 2012

Derivatives, the Devil and the Holy Water

Most private - even if sophisticated - investors will have never heard of Warren Buffett's famous dictum where he described derivatives as 'financial weapons of mass destruction'. We always have advised readers and clients to give derivatives (including 'structured' or 'guaranteed' products) a wide berth. Most investors - including Yours Truly, do not have the capability to look behind the complicated financial mathematics that is required to properly understand these concoctions. Neither do we have the slightest desire as it would be a futile exercise. If properly priced these instruments basically are a chip to participate in a financial bet that is a zero sum game. And half the participants are by definition destined to loose. We leave it up to the imagination of the reader to guess on which side a part-time investor will find himself when he pits his wits against highly motivated (because highly paid) financial engineers who do nothing else but design 'products' that allow them to profit from the losses of the other party to the bet. A particularly drastic illustration is provided by the latest revelation of the popular game played by blue chip (and lesser) financial institutions called heads I win, tails you loose. Does a storied bank with a reputation to loose really need to sell a 'variable prepaid forward' to an unsophisticated lady? The lesson is clear: ordinary private investors should stay clear of derivatives like the devil from the holy water!

7 October 2012

Watch the money-weighted rates of return on funds

Most investors find it difficult enough to understand the performance data they are given by providers of investment funds. Few, however, will realise that these numbers can be quite distorted as they usually are not calculated on a money-weighted basis. This difference, while small on an annual basis, can add up to quite a substantial amount if the investor holds the fund for a number of years. The cumulative loss can reach 60 per cent over 15 years as has been reported in a new book by investment fund pioneer John Bogle.

1 October 2012

Investment Scam Watchlist

$500 million ponzi scheme uncovered - Intelligence no proof against Greed (Handelsblatt)

Ex-Hedge Fund CEO Pleads Guilty to $4 Million Fraud (Bloomberg)

Former stockbroker faces jail over £32 million fraud (Daily Telegraph)
Japanese Asset Management fraud may have cost investors $2.49 billion (Reuters)

Smart Investors fell victim to $1 billion scam (Barron's)

30 September 2012

A useful checklist

10 Rules for Dealing with Financial Advisers (The Big Picture)

26 September 2012

Financial TV - who benefits?

Amid the permanent cascade of opinions that are pumped out by financial news stations such as CNBC and Bloomberg one easily forgets that the information peddled should be consumed with caution. Potential investors may be confused by the hundreds of often conflicting recommendations that are broadcast every week but it is still up to them to make the ultimate decision about what to buy and to sell. But one group of winners is certain: the showmasters! A long-standing news anchor at CNBC, Joe Kernen, for example is reputed to be paid an annual salary of US$ 2 million, not bad for a few hours chatter every morning.

18 September 2012

Should you go for Performance of Glitz?

The answer should be clear to you. No investor should choose a financial advisor on any other basis than performance and cost. Posh offices, a gilded history or an invitation to the next sports or culture function should be considered only at the very end of a selection process. See 'How Private Banks Are Luring the Super-Rich' (CNBC) to better avoid the traps that marketing professionals may set up for the unwary.

9 September 2012

EU Banking 'Union' threatens your Savings

The proposed EU Banking 'Union' which would centralise the regulation and supervision of banks in the EU (or at the very least in the member states of the Euro zone) would be a threat to the savers in the countries with more stable financial systems. The guarantee of banking deposits would also be administered on a centralised basis. This could lead to the situation were the savings of citizens in, say, Germany or Austria, are used to bail out savers in banks in Spain or Italy.

7 September 2012

Diamonds - an Investor's best friend?

Just finished watching a clip on one of the major financial news channels. They discussed the benefits of investing in diamonds. At a time when the tax levels in all major industrial nations approach confiscatory levels and more of the same might be in the cards (tax on all cash holdings and bank deposits in the shape of 'negative interest' rates, - watch this space!) the portability and durability of the gems might appear to be a major advantage. But - as always - the devil is in the detail. The promoter who was interviewed on the programme correctly pointed out that there are innumerable categories of diamonds and that the (wholesale) pricing of the stones is only transparent for professionals active in the diamond trade. Retail customers and investors have no option but to use highstreet shops that charge high mark-ups. This will leave the investor out of pocket if ever he wants to sell his holdings. In addition to the loss due to this 'spread' he will also be exposed to the vagaries of a volatile market which could add to any potential losses. Guarantees that are offered attached to various 'investment schemes' should be taken with a (very large) pinch of salt, or better, ignored completely. It is usually less than clear who is ultimately backing these guarantees and what the financial standing of the guarantor is (or under what jurisdiction the guarantee can be called upon).

5 September 2012

Warning Signs of bad Financial Advisor

A useful summary of warning signs is given by Suze Orman (CNBC)
  • The advisor rushes you into making decisions
  • No clear information on costs and fees is provided
  • Your investments are not sufficiently diversified
  • The advisor wants to exclude your partner(s) from meetings
  • Your requirements and personal circumstances are not discussed
  • Your questions or concerns are not properly answered
  • Statements are not informative or do not arrive regularly
  • You receive no regular quarterly and annual reports
  • The advisor wants to have direct access to your money and account
  • You are not kept informed about important developments
An interesting article on the same subject:

Is Your Money Really Safe With a Financial Adviser?

22 August 2012

IPO's - Facebook illustrates risks

The odds in Inititial Public Offerings (IPO's) are all too often stacked against the buyers. Insiders and the promoters of the IPO are interested in obtaining a high price and have a heavy propaganda machine on their side - despite efforts by the regulators to curtail one-sided advertising. There is insufficient protection against the insiders selling too early and investors are advised to favor IPO's where the majority - ideally all - of the funds raised goes to the company. The sale of a large stake by an early investor in Facebook illustrates (CNBC) the controversy surrounding IPO's.

21 August 2012

Who really owns your Gold?

Many investors may think that by holding physical gold in their portfolios they are to a certain extent hedged against the loss of purchasing power that is experienced by all major currencies. But make no mistake, only physical gold that you hold in a vault that is controlled by you or in some other safe place is really gold that you can count on when the proverbial s**t hits the fan. Unallocated gold or pieces of paper that represent a claim on gold ('Structured' products, derivatives or ETF's) are nothing else but some bank's or fund manager's obligation and as such only as good as the standing of that institution. If they are insolvent you are left with nothing else than a piece of paper and have to join the queue of creditors.

A simple asset-allocation system

An article in the Financial Times proposes a simple-to-use asset-allocation system. But as always the devil is in the detail as it requires the investor to make quite precise estimates for the expected returns in the various asset classes. In an ideal world the investor would just pick the asset with the highest expected return. But even after taking account of this deficiency the model still is useful as it forces the investor to at least try to quantify his expectations. This discipline will protect him from being over-exposed in any asset class and help to avoid being overly optimistic or pessimistic at major turning points in the markets.

Another Warning about the safety of your assets

Most investors are unaware of the arcane details of bankruptcy law and related aspects of investor protection. But this warning illustrates that politicians and regulators seem to be less concerned with the well-being of investors and have decided to focus on the interests of the finance lobby.

19 August 2012

Even arbitration no protection for investors

This case demonstrates that investors should not rely on securities arbitration for his protection as providers of financial services use every legal option to delay or void such an award. The reader can form his own judgement about the morality of such conduct.

16 August 2012

Are your assets in safe hands?

Most financial assets are these days represented by bits on some faraway computer. In addition, the owner relies on some third party - a bank or fund manager in most instances - for the safekeeping of his 'bits' (wealth). When new court judgements make this remote control even less secure it represents an extra layer of risk that all investors have to guard against.

15 August 2012

How to spot an investment scam

An suspected investment scam involving the sale of derivatives linked to gold has been uncovered in Poland (Wall Street Journal). Based on preliminary evidence the following lessons can be learned: (1) Always check out the credentials of senior management, (2) Do you really understand the investment? In this case I doubt that many - if any - of the investors understood the difference between physical gold and derivatives, (3) Unusual and high marketing expenditures.

10 August 2012

Are Stock Markets rigged?

The controversy over 'algorithmic' and high-frequency trading rumbles on and on. While experts and regulators are unable to agree the ordinary investor is well-advised to tread with caution when investing in the stock market.

31 July 2012

Financial TV news - treat with caution

While I admit that I enjoy quite a few financial news programs on TV I would like to add a word of caution - especially for those investors that do not have the time to make financial analysis and research their main focus during an otherwise busy worklife.

Don't rely on regulators alone for your protection!

When firms point out that they are regulated you should not blindly rely on this as your primary source of protection. Regulators are created by politicians and are often (too?) close to the industries they are supposed to police. (Bloomberg)

30 July 2012

Bank deposits may be expropriated in Eurozone

The introduction of a European deposit insurance scheme could lead to the expropriation of savers in countries who end up as net contributors to the scheme warns former member of the ECB Ottmar Issing. (Financial Times)

26 July 2012

Don't complain - do your research!

Too many investors - even professional money managers who should know better - chase fads and overpay for their investments. A quick look at the key numbers behind the Zynga should have sent out warning signals and it is pointless to complain about insiders who unloaded more than half a billion dollars worth of stock in a secondary offering last April.

24 July 2012

Anti-Money Laudering measures bark up the wrong tree

Prevention, detection and prosecution of money laundering has become big business during the past 20-30 years. And it will keep on growing and feed an ever-expanding army of regulators, compliance officers and assorted consultants. By definition the term money-laundering can be applied to nearly all business transactions and it taints everyone - even innocent parties - that is involved in commerce. For who can with 100 percent certainty say that someone he transacts with is not in some way associated with a proscribed activity? As re-iterated on this site for a few times money-laundering legislation is only a get-out for poor legislation and poor government. If the crime (and quite a few of the proscribed activities do not rank as crime in everyone's eyes) would have been prevented, detected or prosecuted, or even better, bad laws would not have been enacted, the need for anti-money laundering would vanish. But it suits today's political class to create a climate of all-pervasive supervision and fear among the citizens they are supposed to serve.

23 July 2012

How safe is your (US) Futures Broker?

Atlas Ratings is worth checking if you are nervous because of the failure of US brokers during the past year. You certainly do not want to rely solely on regulators.

28 June 2012

Investment fees can cut returns by up to one third

While most investors tend to look at performance and try to catch the next hot trend here is a healthy reminder that the aspect of fees that are charged by investment managers and related service providers should not be neglected (CNBC). When up to one third of the investment returns (or in the worst case of zero or negative performance one third of original  investment) can be be lost in these expenses we are talking about serious money and careful monitoring is essential for investment survival.

27 June 2012

Minneapolis Doctor is defrauded in $7 Million Scam

Just another example illustrating that due diligence is essential when selecting a money manager. Full Story here (StarTribune)

5 June 2012

Why is your Financial Adviser offering 'Alternatives'?

When being offered any financial product investors should always make sure that they really understand them and are not swayed by the sales pitch they get from a financial adviser. While the inherent risks in any product should be the main consideration there is also a need to have a good look at any fees associated with the product.

14 April 2012

Advisor Rankings - treat with caution

Barron's Magazine regularly publishes a list of  'Top Financial Advisors'. While this list covers only US-based advisors it creates more questions than it answers. First of all it should be no surprise that there is more than a hint of self-promotion as advisors apply to have their performance reviewed by the magazine. While we value Barron's highly and enjoy reading it for more than 45 years (We hope our age is not frightening readers away) the editors are faced with a major problem when tackling the question of actual investment performance - not performance as measured by assets under management (or advice). The latter measure is used by Barron's as a proxy for good performance - more assets should normally be a sign that the advisor is doing a good job. But there are limitations to this imputed correlation and investors would be well advised to have a look behind the glitz and glamour of a good marketing presentation and have a close - and impartial - look at the performance, risk and fee levels associated with any investment advisor they entrust some part of their investment funds to. On a closing note we can but admire the superhuman skills of some of the advisors listed as they seem to be able to handle 1,000 and more accounts. In that respect they really deserve a 'top' rating (Honi soit qui mal y pense, as the Queen would say)

7 April 2012

Model portfolios - not perfect but better than alternatives

While the use of model portfolios by financial advisers may not be the best solution for all investors they often are a better choice than alternative solutions that are tailored to fit the particular needs of an investor. Asking about the past performance of the model portfolio allows to compare the achievements of each investment firm. After an investment has been made the investor can easily compare the performance of the portfolio and benchmark it against alternatives. If investors demand that their financial advisor contructs a portfolio that is subject to many constraints (risk tolerance for example) they will not be able to hold their advisor to account and properly measure his investment performance.

5 April 2012

How safe is your money?

Bankruptcies of major financial firms Lehman and MF Global have left a sour taste in the mouth as supposedly segregated customer/client money was exposed to grave risks or even lost. Banks may have difficulty keeping track of a myriad of transactions that routinely cross their busy desks but investors should be aware that securities they think they own are nothing else but electronic digits in some distant computer.

What returns can you expect from stock investments?

The experts argue about the return that investors can expect to earn from investments in common stock. Research studies cover a period of nearly 200 years but even in the markets that have been subjected to the most careful analysis - the USA and the UK - the results are hotly disputed. But whatever the numbers may be - anything between 5 and 10 percent before inflation may be plausible - investing in shares is fraught with high risks for the ordinary mortals. The stock market is to a large extent a machine to enrich the selling insiders - current IPO plans are a good example. The German Banker Fuerstenberg said nearly 100 years ago - shareholders are stupid and insolent, stupid because they buy the shares in the first place and insolent because they even expect a dividend. That said, there are always great opportunities to profit from mistakes that 'Mr Market' makes, but to profit from them you have to be 100pct dedicated to the stock market game in order not to be fleeced.

Who protects the investors?

When reading that the justice authorities in the Swiss canton of Ticino have completed their investigation into the bankruptcy of Sogevalor, a financial advisory firm that went out of business in 2004 (!) one has to ask who - if anyone - is really protecting investors from fraud and malpractice. Those responsible for Sogevalor's demise - and the alleged fraud that cost investors up to Sfr 130 million - have not even been charged and may well escape any formal prosecution. Even under most optimistic assumptions a court case could be a protracted procedure - especially when a lengthy appeal process is adopted. By that time quite a few of the investors - and maybe even those eventually found responsible - may no longer be in this world. The lesson from this and similar cases should be: BUYER BEWARE! Investors should only part with their money after careful investigation. A clear separation of the safekeepking (custodial) function and the investment advisory role would be the optimal solution we recommend.

Target-date funds no panacea for retirement saving

Are they just a marketing gimmick? (Reuters)

Do not put too much faith into investment gurus!

The only information you should rely on is your common sense, your own investment research or investment advisers with a strong track record that pass a thorough due diligence process. Beware of investment gurus in the media or the finance profession.

28 March 2012

Do you really need a 'lifestyle' offering from your banker?

Reading about Barclays' lifestyle offering for 'high net worth clients' one has to wonder if that is what will restore confidence among investors that suffered from a difficult and unrewarding investment climate during the past 10+ years. Would it not be better to concentrate on producing the best possible performance for the client's portfolios and save the money (and possibly reducing fees accordingly?)

Beware of selective performance statistics

The first quarter of 2012 is nearly over and it has been a good one for markets. Inevitably some fund managers (or better some of the funds in their product line up) have done well and are not slow in trumpeting their achievements. But investors should be careful when listening to the siren songs of marketers or investment advisers. A fund that did well over the past three months may not look so good when scrutinised over a one or three year period. Even when a fund passes muster over the longer periods there might be other - and larger - funds managed by the same firm or individual that can show at best a mediocre performance. That leaves the poor investor still with the difficult (impossible?) choice of picking the right fund.

24 March 2012

Use fee-based adviser and liquid products

Recommends William Baldwin (Forbes).

18 March 2012

Don't be a Muppet when dealing with financial advice

The revelation claiming that some employees of Goldman Sachs occasionally referred to customers as 'muppets' should be a reminder that the old adage 'Buyer Beware' should always be foremost in investor's minds when confronted with financial advice. In nearly all situations the vendors have a financial interest at stake and the inherent conflicts of interest can only be neutralised by a careful analysis of the service on offer. Most investors are at a disadvantage as they do not have the same level of information about the intricacies of the financial markets that is available to finance professionals. Taking unbiased advice is recommended in order not to become just another muppet. For more on the subject read here. The distinction between a client and a counterparty should be of particular interest to private investors.

22 February 2012

Bidding war for Financial Advisers - what it means for you

News that major players in the financial services industry are involved in a bidding war for financial advisers should alert investors that they may be left paying the bill for irresponsible behavior by the employers of these advisers. After all, more pay for the lucky advisers who have large amounts of money lavished on them means that they are expected to 'produce' fees and commissions that justify their increased income. This could well tempt some - or the majority - among them to put their customer's money into investments that are selected not because they are particularly suitable but because they result in higher fee income for the adviser. Investors should therefore be wary whenever their financial consultant changes employer and take independent advice before considering shifting any accounts to a new firm.

9 February 2012

Unbelievable neglect of customer confidentiality!

It is reported that in the course of its agreement with US authorities UBS in Switzerland accepted the obligation to report the destination banks for all US customers. It may have been done via the Swiss authorities but the bank should have been aware of the consequences for its 'clients'.

7 February 2012

Private Banker diverts Sfr 1.5 million and escapes jail!

The selection of an trustworthy financial adviser is of the utmost importance. While no customers of the bank in question have lost any money the case case should still set alarm bells ringing. When the director of a bank can escape a prison sentence even after he admitted that he 'diverted' Sfr 1.5 million from commission payments to his own accounts the sentence demonstrates that crimes by banking and finance professionals are still not punished in the same way as crimes by 'ordinary' criminals and investors should be extra careful when selecting a financial adviser. That the banker in question enjoyed a basic annual salary of  Sfr 240'000 and at one stage received an annual bonus of Sfr 816'000 is proof for the extent of his greed.

5 February 2012

What are 'complex financial products'?

An arbitration award that related to the sale of a 'complex financial product' illustrates the problem that ordinary investors face when offered these products. In nearly all such situations they find themselves at a severe disadvantage vis-a-vis the salesperson or financial adviser. It is like asking the patient to make a judgement about the correct procedure when faced with cancer. So trust is of paramount importance in any relationship between an investor and financial professionals. Sadly, we can only recommend to always get a second opinion from a neutral expert before buying any financial instrument as the layman cannot really know when an investment vehicle is 'complex' enough to warrant special caution and analysis.

31 January 2012

'Vaporized' MF Global Funds - Insult added to Injury

"The theft of customer funds was bad enough, but the manner in which the exchange, the regulators, the court, the Congress and the Obama Administration have dealt with the aftermath of this is truly despicable." (Jesse's Cafe Americain)

Azentus Fund loses 6.70 % in first year

But assets under management are up. Need we say more? Nothing illustrates the need for careful fund selection more - and this applies to all investment funds, traditional, hedge or private equity.

When lawyers become greedy

A sobering reminder of the problems investors can face when they use a lawyer to get compensation for fraud or misdemeanour they suffer at the hands of a financial adviser. Dealing with a (real or imagined) compensation claim is a complicated affair and people are in most cases facing no option but to trust the legal expert once they have asked for his services.

30 January 2012

Hopes fade on MF Global Funds

A new term enters the financial dictionary: sources state that $ 1.2 Mio in supposedly segregated customer funds may have been 'vaporized'. Just in case you ever thought you could or should rely on financial regulators or their taskmasters the politicians.

27 January 2012

The Twelve Axioms of Investing

Quite interesting summing up of important investment rules. Nothing really new but the obvious cannot be repeated often enough.

Big Brother is after your Gold

We have warned repeatedly that the Western 'Democracies' are on the slippery slope to a totalitarian Superstate that will make anything seen in History like child's play. Latest confirmation is the remark by Paul Volcker about the possibility that intervention in the Gold Market by governments may be justified 'at any critical point'. The next step will be 'interventions' by our trusted friends, the political establishment/congregation of Spenders of Other People's money, who will 'request' that you put your gold at their disposal to help 'needy causes' - such as spendthrifts in Greece or Portugal. Intelligent Investors know that the only way to store Gold safely is in physical form and away from any place where states can trace it or have the access blocked.

25 January 2012

Broker of Investment Adviser?

Often the two terms are used interchangeably but investors are urged to understand the crucial difference between the two terms. While an Investment Adviser may be held to a high standard of fiduciary duty (this does not guarantee that he will make profitable investments!) a broker only has to offer 'suitable' investments. This distinction applies to the USA but similar differences exist in many other countries.

18 January 2012

Hedge Funds had difficult 2011

One of the problems when investing in hedge funds is the asymmetric risk-reward profile that an investor faces. The fate of Eton Park Capital Management illustrates this. While there may be a high-water mark that gives some comfort to the investor who is faced with a loss of 11 pct during the last year, the investment manager is not required to return the performance fee that was charged to the fund during any previous year when the fund made a profit.

16 January 2012

Who is protecting your confidential information?

In times where huge amounts of information can be downloaded by any bank employee with some basic computer skills it is amazing - not to say frightening - that a Swiss bank can treat client data with so little care and respect as happened at Credit Suisse. Not less than 4812 pages of client information were sent to the Swiss Federal tax authorities when only information about 5 named US citizens was requested. Is it really that hard for highly paid Brady Dougan, the chief executive of the bank, to make sure that clients (the original Latin word means 'someone you are protecting') get more care? The fine old tradition of numbered accounts should be considered as a safeguard - this time not to facilitate tax evasion but to prevent unauthorised use of information.

15 January 2012

Pitfalls of Performance-based Money Management Fees

Interesting article about a seemingly fair performance fee. Investors are advised to check the small print though!

Danger of Structured Products - a Case Study

Two investors were recently awarded a multi-million arbitration award by a US court. The case illustrates the danger of putting too much trust in portfolio advisers. Investors should be particulary vigilant when presented with complicated, especially 'structured' investment products. The rule should be: what you cannot explain to your wife or grandmother in a few simple sentencies should not even be touched with the proverbial barge-pole. How many ordinary people - even those working in challenging professional jobs - do really understand municipal arbitrage strategies sold to the investors under the cryptic name ASTA/MAT? Investment Advisers offering such products are nothing else than salesman lured by the fast fees that are usually part of such 'products' and should be treated with a healthy amount of suspicion.

14 January 2012

How safe is your Fund?

The regulation of investment funds is contained in voluminous tomes in most countries. In addition supranational entities like the EU add their own regulations. So should the investor assume that any fund issued by a regulated investment firm is safe from fraud and malpractice? We have repeatedly warned that even investment funds domiciled in 'developed' countries like member states of the EU are not automatically fail-safe. Apart from the question how small countries like Luxembourg, Ireland or Malta could afford to reimburse investors for substantial losses it is by no means clear that the wording of the regulations is such that the rights of the investors are defined in a sufficiently clear way. As ongoing court cases in Luxembourg demonstrate, rubber paragraphs allow to drag on court cases for lengthy times and fund providers try every legal trick to wear down the hapless investors who try to reclaim their savings.

12 January 2012

How much should you rely on a prospectus?

We always advise against excessive reliance on written marketing material. Glossy brochures can be deceiving and should not divert the investor's attention from the crucial aspects of safety and performance. The same can also be said for impressive premises, fancy conferences and well-tailored suits worn by your financial advisers. But some clients may think that a formal prospectus, seemingly approved by the regulators, may be in a different league and give an official stamp of approval on the investment product that is suggested to be put into a portfolio. A recent court judgement in Austria gives a warning in this respect. The regulatory authority there stated that while it checks the formal correctness of an investment prospectus it does not verify the actual facts that contained in it.

7 January 2012

Sauve qui peut!

Financial Fascism is on the march