Wednesday, August 15, 2012

When the Going Gets Tough, Investors Need Fiduciaries

Two icons of the investment world have looked ahead, and what they see isn't pretty.

Bill Gross, the bond king, says the cult of equities is dying. Jeremy Siegel and others point out that Gross confuses stock appreciation with stock returns. Even so, Gross makes his case: subpar returns appear likely for several years.

John Bogle, the Vanguard founder, terms this the worst time for investors he's ever seen. The outlook for stocks is poor, and “the outlook for bonds over the next decade is really terrible.”

That's not even the bad news. In Bogle's view, the whole financial-services system is broken. “A culture of short-term speculation has run rampant,” he writes in his latest book, “superseding the culture of long-term investment that was dominant earlier in the post-World War II era.”

Bogle's proposed remedies, as summarized by The New York Times:

He advocates taxes to discourage short-term speculation. He wants limits on leverage, transparency for financial derivatives, stricter punishments for financial crimes and, perhaps most urgently, a unified fiduciary standard for all money managers: “A fiduciary standard means, basically, put the interests of the client first. No excuses. Period.”

Agreed. In a perfect world all investors, even "the little guy," would receive the same kind of unbiased guidance offered by the best corporate trustees and advisory firms.

In the real world, it's a tall order.

A clipping from "The Clash of Cultures"


Shanne @ Ed Butowsky said...

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Pat said...

Comparing years of trust maintenance and returns under Glass Stegall and those after Glass Stegall appear to be a lesson for any rational people of what not to do with regards to financial security.

Whether any banking entity or financial firm can afford to ignore its prior obligations to customers/clients under the guise of Glass Stegall ending is debatable as imprudent investing to be sure, especially is there is prior history with an account. Where it runs over into embezzlement or theft on the basis of custom/practice is one of the issues that has been ignored in the news, using the convenient financial meltdown as excuse. That no required accountings are done for the distinctions and differences is the substance of what forensic accounting is made.

Why allow it to be ignored - whether Glass Stegall exists or not? Absence of Glass Stegall is not license for reproducing Bernie Madoff's.