Why the fund managers, private banks and wealth managers are failing investors.
Tuesday 8 July 2008
I find the FT the first place to look for comment in the financial world and found Merryn Somerset Webb writing about “Get yourself more money and sense” on June 27 2008
Bypass the introduction, and go straight to the interesting bits… “So, if you’ve got money – say anything from £250,000 – how do you choose one of them(banks, fund managers) to look after you? They might come to you of course. Keep too much money in an ordinary bank account and a 20 something manager from its wealth department will find your phone number and promise you 7 per cent a year for ever. But how will you know if he can make good his claims? You can’t. A wealth manager doesn’t come with a ready list of performance figures – you can’t see an index that tracks his exact performance over any given period of time."
Murray Round Comment: If they can’t really explain performance and how it was derived, how can you have faith to invest with them in the future? It is easy for us to understand the importance of this issue, after all its what we do, the hard part is for you, as an investor, to recognise its significance. If you do, I am sure you will be calling us.
“Anyway, as one senior financier said to me recently, what difference would it make if you could? Most managers are far too young to have a clue about how to manage money in a real bear market. So, these days, past performance numbers have to be treated not just, as is usual with suspicion, but as utterly irrelevant."
Murray Round Comment: Ouch, too young! But it’s your money they are managing. Perhaps applying the research that is available, if you know where to look, might be a better route.
“Still, there are questions that will help on the way to finding the right manager. One place to start is to wonder if you want your money to be looked after by any of the institutions that have recently proved so monstrously incapable of looking after their own money. Say Citi or Merrill Lynch, for example. If you think not, you won’t be alone. Most of these big names have, says Scorpio, have seen “disappointing asset growth” over the past year.“
Murray Round Comment: So why give your money to these institutions who are making an absolute mess, surely its time for a change?
“And staying away from them is probably no bad thing – subprime losses or not. The bigger the institution you choose, the more likely you are to have your portfolio managed sausage-factory-style, the more expensive “structured products” you’ll find you own, and the more likely it is that your money will find its way into an in- house fund (these aren’t all bad, but they are mostly not exactly what the industry likes to call “best in class”).“
Murray Round Comment: In other words, they need to sell you investments that make the most money for them. Is that what you are really looking for?
"Next, ask where your money will be invested. For all the excitable talk of alternative asset classes and diversification, the average private client portfolio remains very traditional. Late last year, I looked at one held for an elderly lady by one of the UK’s bigger managers. It had been put together by someone who clearly thought diversification was not so much about having exposure to the UK, Asia, the commodities sector, a few hedge funds and a little Latin America as about owning Bradford&Bingley as well as Barclays."
Murray Round Comment: It’s gone from bad to worse. No real concept of diversification. I feel sorry for the elderly lady in question.
“Ask about asset allocation (much more important than stockpicking) and about fees. If the latter are more than 1 per cent or so a year, they are far too much. Remember, the up front fees are just the beginning: there’ll be transaction fees too and the management fees embedded in any funds your manager buys on your behalf.“
Murray Round Comment: Asset allocation has been shown through research to be one of the main drivers of returns over time and fees and charges erode returns. Yet so many charges are implicit. We know about implicit charges, so does the FSA, but most investors find it almost impossible to get to the bottom of these charges without independent professional help.
“Then ask about staff turnover. Wealth managers move all the time and every time they move they’ll try and make you move with them. That’s boring, but forming a relationship with a new manager at the same institution is boring too. And if your manager looks like he might stay put, ask how many clients he has. If you’re a smallish client (under say £500,000-worth of assets), you may find he has 100-plus clients. That might not matter, but it will mean that when you call there’ll be five minutes of pointless chat while he scrabbles around in his spreadsheets trying to remember who you are.”
Murray Round Comment: Without doubt this is a dreadful indictment of the state of big financial institutions managing wealth for clients. Of course you may think it’s not happening to you, but perhaps you should look again. It's knowing what questions to ask..perhaps then you will get some answers that will help you make better decisions. There is no doubt the big institutions have ridden rough shot over countless investors..and these investors are often high net worth.
So start building your own knowledge to help protect yourself against these institutions. Even better, find someone like ourselves who operate independently of the fund managers, take no commissions, and maybe you will have a better investment experience over time. Enough said.
Categories: Asset Class Management, Diversification
posted by Murray Round Wealth Management @ 12:23,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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