Are you ready for FATCA?

A major US investment bank was famously described as 'a great vampire squid wrapped around the face of humanity' but we would say that this description much better fits the US government. The recently enacted 'Foreign Account Tax Compliance Act' is another step back into the time when a citizen was treated more like the property of the ruler and could be taxed at will. Other countries would be well advised to prohibit their institutions from passing on any information to authorities in a foreign country. The whole idea of sovereignty of states is at stake when one country is allowed to apply its laws in other jurisdictions. If the US wants to make sure that it's citizens are complying to all tax laws the authorities are well within their rights to close the borders for capital leaving the country. From a practical point of view, FATCA means that investors have to take even greater care when selecting a financial advisor. Non-US investors are also in danger of being compromised by information flowing too easily from a compliant bank or money manager to the US authorities.

Fund of Hedge Funds - A critical view

A study of the performance of Swiss Funds of Hedge Funds throws light on the performance of a product that is increasingly recommended by Fund Managers and used in the construction of private client portfolios.

Ski Jumping, Soccer and Private Banking Advice

Do you know what the connection between these three items is? If your first reaction is: not much! then you are on the way to understand that you have to treat all kind of advertising by the financial advice industry with caution. The fees that are spent on 'image advertising' may be a welcome windfall for the 'personalities' involved in the publicity campaigns but - apart from indirectly being a charge on your investment performance - they will do little to make sure that the return on your investments is as good as it should be.

Don't mess with 'J.R.' - Larry Hagman wins arbitration case

News that actor Larry Hagman has won an arbitration award against the employer of his former financial adviser illustrates the importance of supervising the activities of any adviser. In this case Hagman and his wife were sold an expensive (and possibly unnecessary) investment 'product' and their portfolio was subjected to substantial turnover which implied a high level of fees and commissions. The case also illustrates that is is not enough to rely on the image/reputation of the employing bank or fund manager - sponsorship of sports or cultural events is no substitute for performance. Careful vetting of any new adviser should also be conducted and include the use of references and all other available information.

Formula 1 Driver as Private Banker?

Pedro de la Rosa has been appointed as figure-head for the new brand 'Santander Select' that is intended to cater for private banking clients with substantial assets. The battle for the opportunity to manage the money of the well-off threatens to become farcical when reputable and large banks such as Santander turn to sportspeople in order to increase their appeal to potential customers. Investors are well advised to remain sceptical about such (expensive) methods to attract their attention and instead focus on performance, costs and risk when analysing their existing or prospective investment advisers.

Fraud even the Specialists may find a challenge

The full complaint by the SEC against a hedge fund manager demonstrates in all its 46 pages how difficult it is even for specialised lawyers and auditors to detect fraud that may be perpetrated by intelligent and determined individuals. Every protection against abuse is only as strong as the weakest link and investors are well advised to get all the protection they can get.

Can an ETF collapse?

The ETF concept is spreading fast so it is useful to pause for a moment and consider possible risks that are not mentioned by the marketing men selling these products. When a headline such as this one catches our eye we therefore pay attention. It demonstrates that all investments carry some risk and investors are well advised to do their own due diligence rather than rely on marketing patter or recommendations by 'friends'

Still no end to conflicts of interest

One of the areas where PBA helps clients to navigate the investment scene is the prevention of possible conflicts of interest among the client's money managers. Recent trends in the regulation of financial service firms also tend to strengthen this aim. So it is with curiosity and surprise that we learn that a major player in the private banking industry has just taken a stake in a large hedge fund business (Credit Suisse pays $425 million for a 30 per cent stake in York Capital Management). The deal may well work out for CS - it certainly will for York's management. But Private Banking Advisory has reservations about a bank's investment advisers recommending in-house funds. While CS only owns a stake in the profits this creates a possible conflict of interest. And does a bank like Credit Suisse really need to buy access to a fund? If performance at York weakens what will the bank then do? Will the advisers still give preference to York's funds? and if there is no preference - as it should be - to begin with, why buy a stake?

SEC to examine Investment Advisors for conflicts of interest

Fund allocators in Private Banking and so-called Hedge Fund of Funds have traditionally been a major source of investment money that found its way into the Hedge Fund sector. Both sources are widely spread internationally and have been subject to little or no supervision and regulation until now. There is also scant disclosure of the terms they exact from the funds they allocate money too and many investors - especially private individuals - did not know to ask the right questions and were also kept in the dark. So we welcome the decision by the SEC to examine whether firms that collect fees for funneling investors into hedge funds are properly overseeing client money and dealing with potential conflicts of interest (Wall Street Journal, 10 Sept 2010).

Fraud: Keneth Starr stole $50 million

Not a day passes without a headline about another investment scam.