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.

Robo-Advisers lose their innocence

Human nature does not change - despite all the talk about Robo-Advisers. The computers may be programmed so that they do not select the best possible investments for you!

https://www.bloomberg.com/news/articles/2017-07-27/your-robo-adviser-may-have-a-conflict-of-interest

Market Professionals at an advantage

Any Retail Investor, small or of 'high net worth' should watch the activities of investment professionals like a hawk. Market Insiders always have an information advantage that can allow them to charge higher fees or find excuses for under performance. 
The Dirty Little Secret of Finance: Asymmetric Information (Bloomberg)
Information asymmetry: Secrets and agents (The Economist)

Why Investors need to scrutinise all Fees

A Horrow Story of abusive fees-

• Promised Services are not performed
• Overpay for Average Returns or Underperformance
• Management Fees based on inflated Asset Values
• Valuation Methods changed opportunistically
• Back-door Fees via non-independent Experts
• Detrimental Allocation of Profits due to Outperformance
• Performance Fees not calculated properly
• Non-Business Expenses charged to fund
• Transactions executed at false prices

If this is not enough to make you seek advice on portfolio monitoring you only have to blame yourself if the net returns you receive are disappointing.

Keep in mind that even the most prestigous Fund Managers or Private Banking names should not escape close supervision.

Private Equity getting less 'Private'

I always argued that Private Equity was anything but private. The funds were managed on behalf of the Public who was invested in the funds via fiduciaries in the large pension funds, insurance companies and private banks. That the industry is only now paid more attention (Enter the Secret Garden of Private Equity, NY Times) by the regulators is indicative of the fact that no investor should ever rely on bureaucrats to protect his interests. So the blame should really be laid at the door of the supposed 'fiduciaries' who were - and to a large extent - still are asleep on the watch. Should they not have long ago raised all the points about expenses, fees, performance calculations, conflicts of interest etc.?

You are not a 'Client' but 'Strategic Money'

If ever you were called a 'client' by your financial 'adviser' at BankAmerica's Merrill Lynch unit you should think about this for a moment: how can you be a 'client' and 'Strategic Money' at the same time? The word client means that you should be protected by the adviser. But if this Adviser is acting as a commissioned salesman it is difficult to think that he will always put your best interests ahead of a sales commission he or she can earn by proposing a financial product or transaction.

Buyer beware! Investor beware!

Any situation where investment advice and investment execution are in the hands of the same firm an investor deals with creates conflicts of interest. If an investor wants to follow his own opinions he should do business through an 'execution-only' broker, preferably an online broker. Alternatively, the investor should give full discretionary authority to the investment manager of his/her choice and let them get on with it. Careful scrutiny of past performance records (documented and fully audited) is essential as is regular monitoring and benchmarking or performance.

Broker versus Adviser

Investors are often not aware that their investment adviser is to all intents and purposes a salesman who earns a commission (often euphemistically called a 'bonus') that depends on the amount and type of 'investment products' he sells to the customer. Such an 'adviser' has to be seen as a broker. Investors are urged to ask any adviser how he is paid and if his firm gets any commission or other rewards from the fund managers or products he recommends.

Investors gullible and naive - study

"Delegating responsibility for investment decisions make investors vulnerable to the choices of professionals, choices that may be opaque, shielded from market discipline or tainted by conflicts of interest." A study of investment behaviour illustrates 'terrible investment habits' of American investors and the need for impartial advice.

10 things you should ask your financial adviser about
(MarketWatch)

Do not be taken in by fancy offices, glossy brochures or even by the centuries-old pedigree of an investment management company. If you are not sure how to protect your interests in the face of a slick and professional marketing machine you should consider taking impartial advice. And do not even think to rely on regulators - just never forget Cyprus and the fact that EU regulators were powerless (unwilling?) to help depositors in some of the country's banks.

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)

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.

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.

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.

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.

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.

10 commandments for protecting clients

A banker from Switzerland's Baumann & Cie has published an admirable list of ten commandments (in German) that a client advisor should adhere to in order to put the client's interests above any internal pressure to generating fees. These ten commandments are admirable as a declaration of intent. But how can a client be sure that they are adhered to? Trust is good but control is better and an independent advisor will make sure that this checklist (and additional precautions regarding risk, performance measurement and fees) is followed.

Who shall teach your kids the facts about (financial) life?

Providers of Financial Advice are falling over themselves to teach the kids of rich families how to handle their affairs when they are faced with the challenge of managing substantial businesses and supervising the investment of substantial family fortunes. We would caution against entrusting banks and money managers with this educational task and advise families to find providers without an obvious conflict of interest.

Who is fighting your corner and watching out for possible fraud

A case brought against a prominent investment firm illustrates that investors need expert advice when faced with sophisticated money managers that may well have an information advantage and better knowledge of the investment products.

Nine out of ten clients get bad advice

While a survey conducted by a consumer organisation in Germany may at first appear to be of little relevance on a wider global scale it offers a useful insight into problems faced by clients of banks, investment advisers and insurance companies. They are usually at an information disadvantage compared to their adviser/salesperson and we suspect that a survey conducted on a more international basis would produce similar results. Getting advice that is not influenced by any monetary incentive such as commissions, transaction fees etc is more important as products continuously become more complex and more difficult to analyse for the laymen - including businesspeople who may be used to dealing with sophisticated financial product in their 'day job' running often quite substantial businesses.