Showing posts with label investment management. Show all posts
Showing posts with label investment management. Show all posts

Tuesday, August 26, 2014

Is Investment Advice Too Expensive?

 After WWII, when the wealthier members of the Greatest Generation opened investment management accounts at a bank or trust, their annual expense was probably about 1.5% to 2% – half a percent as a management fee plus one percent or more in "full-service" brokerage commissions.

These days, investment management fees tend to be higher but, with luck, transaction costs are lower. Total annual running costs probably are about the same.

Could change be coming at last? Will relatively low-cost online services lead to a price war? As we suggested recently, not necessarily – at least not in the high-net-worth segment of the market. The sums multimillionaires pay for investment services don't seem so extravagant when you consider the cascade of fees they face when traveling.

This year, hotels will collect more than $2 billion from fees they tack on to their room rates. My favorite: a $25 fee for putting your own can of Coke to cool in the minibar.

By the time a high-net-worth investor returns home, he or she may see wealth management as a bargain.

Monday, August 04, 2014

Cracking the Mystery of Modern Wealth

Say you're seriously rich, perhaps sublimely rich. Have you lost track of exactly what you own and what it's worth? Are you prepared to pay $50,000 or more to find out?

See Wealth Managers Enlist Spy Tools to Map Portfolios.

Note: when it comes to derivatives, private equity, venture capital, collectibles and other alternative assets, "exactly" can be a relative term.

Monday, July 07, 2014

Triumph of the Target-Date Funds

You read it here, five summers ago: Because needs and intentions differ for people reaching retirement age, target-date funds may not find much of a market.

Ha! Needs and intentions do differ, but target-date funds are on a roll. These auto-managed portfolios already hold about 20 percent of 401(k) money, and they're attracting more than 40 percent of the new funds flowing into 401(k) plans.

Target funds will maintain their momentum, Barron's predicts (subscription required, but I accessed the article via a Google search).
Looking out five years, target-date funds may be the only investment that most Americans have in their 401(k) plans. That would be quite an achievement for a product that was barely known just a decade ago. 

Sunday, June 29, 2014

Supreme Court Gives Active Investing a Boost?

Companies that issue significant "misstatements" may claim "no harm, no foul" because the stock market isn't always efficient.

In reaching this conclusion, Jeff Sommer of The New York Times notes, the Supreme Court was influenced by Robert Shiller, Yale's Nobel Prize economist.
Investors may continue to rely on the efficient-markets hypothesis in forming class-action groups, and may assume that share prices reflect corporate misstatements. But corporate defendants may now try to prove in specific cases that there was no connection between their statements and price movements. 
Perhaps active investing, a pointless activity were the market truly efficient, isn't dead yet.

Saturday, June 28, 2014

Indexing 2.0: Smart Beta

On average, monkeys throwing darts at the stock listings could outperform most investment managers. Actually, Barron's notes, they can do even better. They can beat the S&P 500.

Reason: the monkeys are assumed to invest an equal number of dollars in each stock they hit upon, regardless of market capitalization. Equal weighting seems to produce better returns. 
[T]he S&P 500 Equal Weight index has returned 9.1% a year over the past 15 years, beating the S&P 500 cap-weighted index by a whopping 4.6 percentage points a year.
Inspired by the monkeys, so-called smart beta investing has produced an expanding list of quasi-index funds not weighted by market capitalization. The more sophisticated models sound a lot like automated stock picking.

Does smart beta investing have legs? Whether passing fad or significant trend, Paul Sullivan's renaming seems appropriate:
[A] better, if less marketable way to think about smart beta might be to call it “lazy alpha”….

Tuesday, June 10, 2014

The Biology of Risk

This Sunday Times column got a lot of attention by revealing why investment advisers can't truly measure their clients' risk tolerance … and why the Fed might do Wall Street a favor by becoming less transparent.

Sunday, May 18, 2014

Retirement Investing is Personal

From Dueling Strategies for Your Retirement Funds:
For anyone approaching retirement, an important investing question is: Should your strategy be "to" or "through"? *** 
The "to" refers to preserving savings for an expected retirement date; the goal is to get "to" that date without last-minute harm to your nest egg. Generally this means cutting back sharply on riskier investments—namely stocks *** 
A "through" strategy means tilting a portfolio to keep increasing savings well into, or "through," retirement. That means higher allocations to stocks and other riskier investments despite a bigger risk of losses.
The strategies aren't dueling. As we discussed five years ago, different retirees have different goals. See The Trouble With Target Date Funds.

Monday, April 28, 2014

The Age of Asset Management

Finally got around to reading Bloomberg Businessweek's Asset Managers are the New Banks. Should have been more prompt.
One of the more disquieting parts of covering banking regulation is how often, in an interview, either a regulator or a banker will say something like this: Regulators have to treat banks with some respect. If they clamp down too hard, the money will go somewhere else, to a place we only dimly understand. Beyond the banks, the logic goes, there be monsters.
In a speech last week to a group of asset managers in London, Andrew
Haldane, in charge of financial stability for the Bank of England, began to map out the land of the monsters. The number of people saving money in the world has grown larger, older, and richer, he said. Life expectancy is rising—as is population and per-capita GDP. And all these rich old people need to put their savings somewhere. It is not going into savings accounts but instead into a category known as assets under management, or AUM: pension funds, exchange-traded funds, hedge funds, private equity.
AUM in the U.S. was about half of GDP in the 1940s; it has now grown to almost two and a half times GDP.

Read Haldane's speech.  Conventional asset management, where funds are managed by stock and bond pickers, is being squeezed between high-cost alternatives, such as hedge funds and private equity, and low-cost index funds and ETFs. Old-fashioned prudent investing seems to have succumbed to the temptation of market timing. Just like the much maligned small investor, many pension funds tend to buy high, sell low.

The good news: Asset management should continue to boom globally. "In China and India, personal financial assets have grown at a rate of 25% per year for the past 20 years."

Monday, January 13, 2014

Private Banking Reinvented

In the wake of the Great Recession, obtaining loans from one's banker has become more and more difficult and time-consuming. The wealthy set is turning to a quicker, easier alternative, Paul Sullivan reports: high-end pawnbrokers.

Hock shops for asset-rich but liquidity-restrained borrowers are springing up both online and in bricks and mortar. Suttons & Robertsons, an English firm founded in 1770 and catering to the "blue chip, wealthy crowd," opens a New York store this month.

Objects pawned aren't limited to Rolexes, jewelry and the family silver. One borrower parted with
one of his two Bentley GTs. (Your humble blogger probably will never realize his dream of a Bentley convertible. But if he does, he promises not to pawn it. Never!)

Marketers of investment services learn to follow the money. High-end pawn shops could offer promising opportunities. If a need for funds arises from divorce, for instance, one man's liquidity problem should lead to one woman's liquidity event.

Wednesday, January 08, 2014

“Watson, Find Me Some Alpha!”

Watson, IBM's eager-to-learn computer, was a winner playing "Jeopardy." Making big money in the business world is proving more difficult, reports the WSJ. Watson's possible career paths include health care and wealth management:
IBM is developing versions of Watson that can match cancer patients to clinical drug trials or recommend an investment strategy after reviewing a customer's portfolio.*** 
Citigroup Inc. has been collaborating with IBM since March 2012 to develop a version of Watson that can recommend financial products to consumers. It hasn't been launched yet.
IBM hopes Watson can earn $1 billion a year. That's a lot of Alpha.

Wednesday, December 11, 2013

1963: The South Rises

Five decades ago, northerners left their wealth to be looked after in New York, Boston or Chicago when they headed to Florida. With this ad, from December, 1963, First National of Palm Beach sought to get in on the action. 

The ad had a name illustrator: Paul Calle. He was best known as a designer of postage stamps, notably this one:


Monday, December 09, 2013

A Classic Investment Ad From 1935

Don't try to make investing your second career, turn your portfolio over to the pros. That's the message Fiduciary Trust delivered in this 1935 ad.

That's the message we were still recycling for Merrill Anderson clients many decades later. Not until digital data-crunching revealed that the average investment pro produced only average results did we have to fall back on "asset allocation."

By 1935 it must have seemed safe to advertise again. After  the market disaster of 1929-32, the DJIA recovered nicely in 1933, remained fairly stable in '34, and soared almost 40% in 1935. Alas, a new, er, "recession" sent the Dow plunging almost 33% in 1937.

 Do you suppose Fiduciary was still running ads in 1938?

Wednesday, October 09, 2013

Coming: The Worst of Times. The Best of Times. Take Your Pick

The other day I got downright depressed after reading a NY Times op-ed by the chief economist at HSBC':The golden age is over.

Today my IRA trustee cheered me up with a piece by the chief investment officer at Peoples United: get ready for the American Renaissance.

You can see why investors wonder if anybody really knows what's coming next.

Saturday, May 18, 2013

The 3% Solution – a Tough Sell

In his weekly Wealth Matters column, Paul Sullivan looks at Evercore Wealth Management. Founded by escapees from US Trust after Bank of America swallowed the nation's oldest trust company, Evercore asks the wealthy to focus on net investment results. That is, net returns after fees, taxes and inflation.

Admirable idea, but a tough sell. Even Sullivan has his doubts:
[W]hat I would have liked to see was a pre-fee return along with the returns before taxes and inflation.
Evercore's web site is cleaner than most. Also worth emulating, their uncluttered, plain-spoken newsletter.

Thursday, February 21, 2013

Why Small-Town Investment Advisers Love Big National Banks

Anecdote from John Rafal, ranked by Barron's as Connecticut's #1 adviser for 2012:
When Rafal asked a recently widowed investor why she was moving her $135 million account to his firm from a big national bank, she was blisteringly candid. "My current advisors are arrogant, condescending and rude," Rafal says the client told him. "I hate them."
To the best of my knowledge, The Merrill Anderson Company doesn't have a single client who would be rude to a woman with $135 million.

Tuesday, November 13, 2012

Investment Ads From 1962

James Bond isn't what he was when Sean Connery debuted in "Doctor No." Neither is the world of investing. From the same 1962 issue of The New Yorker in which Geoffrey Hellman reported on his two-martini lunch with Ian Fleming, here are three ads.

Forecasting is tricky. Fifty years ago growth stocks had become the way to go. Even bond-heavy pension funds started buying them. But, then and now, picking stocks that actually grow isn't easy. Here, Shearson suggests it's like weather forecasting.


To our knowledge this Merrill Lynch column is the only brokerage ad extant that begins with Xerxes crossing the Hellespont.

"The stock market is a little like the Hellespont. Cursing and cajoling has no effect on it at all. Neither does propitiation. But the practical man who accepts its changeable nature and plans accordingly can be its master. Just as a general should read weather reports, an investor should read the financial pages of his newspaper, which are the weather reports of the stock market. *** The stock market is always subject to change without notice. That is its nature – and its fascination."                                                            
Over the past half century weather forecasting has improved by leaps and bounds. Stock-market forecasting, not so much.

The woman investor. Not a call center in sight when City ran this ad set in India.  The ad was cutting edge in one respect: The American couple have his and hers investment accounts.

" His is a portfolio earmarked for growth – composed chiefly of aggressive, common stocks with promise of a dynamic future. Hers is a more conservative program, planned for stability and made up of both stocks and bonds."

In reality, both probably shared the same investment goals. But in 1962, only the man was expected to have enough earning power to make up for serious investment losses.  The woman would have to type her way back up. 

These days? Thanks to strategic asset allocation, we all invest like women. 


Sunday, September 30, 2012

In Two Years, $20 Billion in Investment Fraud!

These are tough times for investors in need of income. One result, a surge in investment fraud and Ponzi schemes. Federal attorneys are fighting back with regional "investment fraud summits."

Nationwide, federal prosecutors looking at investment cases from the last two years identified 500 prosecutions that targeted 800 defendants and involved more than $20 billion in fraud, according to Connecticut U.S. Attorney David Fein. For two recent examples from Connecticut, see here and here.

Income investors who avoid Ponzi schemes by putting their money in dividend-paying stocks aren't necessarily safe. As this NY Times article notes, "the Federal Reserve and other central banks have been flooding the planet with money." A lot of that cash presumably has been sloshing into the stock market. How deep will the Dow dip when it sloshes out again?

Conscientious investment advisers can't always make their clients rich, but often they can keep them from becoming poor.

Saturday, September 08, 2012

“Stop Me Before I Trade Again!” No. 2

John Bogle as quoted in USA Today:
 I was talking about buy and hold to some investment advisers, and one said, "I tell my investors to do this, and the next year, they ask what they should do, and I say, do nothing, and the third year, I say do nothing. The investor says, 'Every year, you tell me to do nothing. What do I need you for?'" And I told them, "You need me to keep you from doing anything."
So how do we convince nervous wealth-holders that successful investing is about as exciting as watching grass grow?

Related Post: "Stop Me Before I Trade Again!"

Thursday, August 30, 2012

Reinventing Investment Service

When the going gets tough, investors need fiduciaries, as we posted recently. Private banks and trust companies and legions of registered investment advisers can fill the bill. Provided you're High Net Worth.

Not so rich? Can't afford fees and expenses of two or three percent a year?  That's a problem. To obtain guidance inexpensive enough to please John Bogle, you would need to settle for an adviser whose previous job was flipping burgers.

O.K. Let's think outside the box. How about a virtual fiduciary? See The Wealth Manager For Rich Geeks.

This virtual fiduciary is called Wealthfront, and its CEO says, “We add very little value, and we price accordingly.” Wealthpoint offers ETF portfolios created by algorithm.  Fees and expenses are minimal.

Check out Wealthfront's inviting web site, a marvel of simplicity. Notice the promotional video

For comparison, I visited Vanguard, Fidelity and T. Rowe Price online. Each site was full of information, but none offered a simple, easy path for putting one's money to work. (I'm guessing fund companies would find it difficult, for legal and other reasons,  to create such a path.)

With skimpy stock and bond returns expected for a while, a truly inexpensive investment service has clear appeal. Even John Bogle might applaud a service that takes advantage of ETFs while removing the temptation to trade them.

Is Wealthfront on to something?


Related Post: Wealthfront's CEO is the same Andy Rachleff we linked to in "Private Banking " Dissected.