“Of course putting the client first is what we believe"
Friday 6 November 2009
...as long as it does not affect our profitability!
I am smiling, wryly, at how the product providers, namely the banks in particular, are trying to promote an image of trust with your money. Putting clients first is the new message. Of course the message is great...It makes sense to do so after the debacles to date, but leopards do not change their spots that quickly (take UBS for example). You have guessed, it’s marketing and one must question the substance.
Most investors are not interested in the Retail Distribution Review that aims to shake up the financial services industry. The Regulators would like the banks to use words appropriate to describe their services. However, the banks do not want to be seen in the true light of day…they like words such as “advice”, certainly they do not want to be regarded as “salespeople”.
To illustrate my point… “Baroness to banks: You're lucky to be able to use word 'advice'. That is the verdict of Baroness Sheila Noakes, the Conservative Party Treasury spokesperson, addressing British Bankers' Association (BBA) retail policy director Peter Tyler at a meeting of the All Party Parliamentary Group at the House of Commons 27 October 2009.
“Tied and multi-tied advisers should consider themselves “very lucky” they may be able to use the term ‘advice’ when explaining their offering to consumers.”
It has be amusing as these institutions clearly would hate being called “salespeople”, yet whatever they call themselves, the balance sheets and profit and loss statements at the yearend simply focus of how much money they make from their customers. Salespeople, yes, advisers, no!
Perhaps one day it will be different, their muses towards transparency and being client focused may materialize, but today, its marketing.
It doesn’t stop there. It’s not just the banks.
Referrals to portfolio firms escape adviser charging rules
Advisers referring clients to a fund manager for portfolio management can take a cut of the management fee without disclosing the earnings to clients under adviser-charging, says Apcims.
In its response to the FSA’s retail distribution review plans, the Association of Private Client Managers and Stockbrokers says that the adviser-charging proposals do not apply to non-retail investment product business.
So what does that mean? For example a firm of stockbrokers may target IFAs to use their investment management services, and pay the advisers under the table so to speak, in an effort to circumvent the abolition of commission payments from 2012.
Where is the transparency? Where is the honesty?
Rather than embracing change which is unequivocally to the benefit of consumers, feet remain planted in the past to ensure they (the product providers, stockbrokers etc) are not disadvantaged!
The simple answer for investors, vote with your feet.
posted by Murray Round Wealth Management @ 09:48,
Your fund managers are failing you..want proof?
Thursday 5 November 2009
Standard and Poors produces The Standard & Poor's Index Versus Active (SPIVA) methodology is designed to provide an accurate and objective apples-to-apples comparison of funds’ performance versus their appropriate style indices, correcting for factors that have skewed results in previous index-versus-active analyses in the industry.
In 2008, the Standard and Poors summary results were as follows:
- Over the five year market cycle from 2004 to 2008, S&P 500 outperformed 71.9% of actively managed large cap funds, S&P MidCap 400 outperformed 79.1% of mid cap funds and S&P SmallCap 600 outperformed 85.5% of small cap funds. These results are similar to that of the previous five year cycle from 1999 to 2003.
- The belief that bear markets favor active management is a myth. A majority of active funds in eight of the nine domestic equity style boxes were outperformed by indices in the negative markets of 2008. The bear market of 2000 to 2002 showed similar outcomes.
- Benchmark indices outperformed a majority of actively managed fixed income funds in all categories over a five-year horizon. Five year benchmark shortfall ranges from 2-3% per annum for municipal bond funds to 1-5% per annum for investment grade bond funds.
- The script was similar for non-U.S. equity funds, with indices outperforming a majority of actively managed non-U.S. equity funds over the past five years.
Referring to one of the statistics, the S&P 500 which outperformed 71.9% of actively managed large cap funds. Whilst I understand there is no equivalent in the UK, various studies tend to show the UK is not too dissimilar, on that basis it is likely that over 70% of UK domiciled funds fail to beat the market.
Yes this says it all...
So why do investors persist in trying to beat the market when the statistics show its futile?
With this evidence, it would seem logical, for investors to conclude that passive investing is the most reliable way to capture market returns and for the investor to benefit from a successful investment experience over time. Institutional investors are aware of these facts and are increasing the demand for passive investments..but what about the private investor?
High net worth investors, by and large, are not fully aware of these facts, otherwise they too would be making the move. Why are so many investors not taking action?
The conclusion is simple. The fund management industry in the UK does not want to promote the fact that most of them do not beat the market. They have failed but do not want investors to know they have failed.
My message is also simple. Educate yourself then the answers become self evident. Vote with your feet and money to securing a more reliable investment experience over time.
posted by Murray Round Wealth Management @ 15:31,
“One in five hedge fund managers misrepresents their fund
“One in five hedge fund managers misrepresents their fund or its performance to investors during formal due diligence investigations, research from New York University's Stern School of Business suggests says the FT, One in five hedge fund managers found to be misrepresenting facts by Sam Jones, Hedge Fund Correspondent
The research is likely to be a further blow to the reputation of a battered industry, which has faced increasing demands for transparency from investors in the wake of the credit crisis.”
The report from Stern School explains the various misnomers, or perhaps the ability the count correctly, whatever the reason, I was fascinated by the statistics.
Sometime ago I read the Tiger that Isnt. Its about statistics and chance. A good layman’s read in my opinion.
My point is that 1 in 5 hedge fund managers are misrepresenting the facts. The good news is that 4 out of 5 are all OK. Yet, 1 in 5 is not necessary the truth, as the truth is subjective, so it could be 2 out of 5. We don’t know.
Secondly, the problem is not the 1 in 5, but WHICH ONE of the 1 in 5? As an investor how do you know if you end up with the 1 in 5? The Hedge Fund will not have a sign above their door to say "We misrepresent the facts", or " We are the 1 in 5", and if there was any hint of misrepresenting the facts in the past, the Hedge Fund PR machine will do their best job possible of making the future prospects look different from the past.
So how does an investor know which to choose? If you pick the wrong one, how does it impact on you? What are the actual risks?
This is after all the biggest problem for investors, namely finding an investment that delivers over time. If the past is no guide to the future, and, the past is perhaps misrepresented as according to Sterns, then investors have a difficult job.
In terms of looking at the past retunrs,I notice also that the much admired David Swensen, CIO of the Yale endowment lost 28.8%, yet a 60/40 portfolio of equities and bonds over the same period would have fallen by 13.5%.
Picking winners in advance is a mugs game and investors should really look no further, for the core of their portfolio to boring portfolios, preferably passive based and cheap to run.
...And if you do want some spice to your portfolio, only do so around the edges not the core, and for spicy investments, be prepared to accept loss as well as the hope for larger gains!
posted by Murray Round Wealth Management @ 14:07,
The changing face of the tax landscape
Wednesday 4 November 2009
I have recently returned from a tax conference. Whilst the image of tax geeks are not like film stars, (Bill Gates refers to himself as a geek, so no disrespect to the Tax Advisers of the world)I can tell you there was more than a hint of excitement in the air! The boffins think there are changes ahead.
Some felt there could be a “smash and grab” policy, which focuses on gather in the cash as fast as possible. Of course, it’s entirely speculation.
Here are some of the thoughts. There is a massive imbalance between Capital Gains Tax (CGT) at 18% and Income Tax at 50%. Many of you will recall CGT being linked to Income Tax rates. Could this change? It was muted that taking the gains now when the gains at historically low rates, rather than wait to future tax rates. Of course, that is always difficult to do…volunteering to pay tax!
Stamp Duty may rise..its 9% in Ireland!
VAT may also rise. Its 19% in Germany.
A fractional increase in Stamp Duty on shares could also be introduced.
As for pensions, there is nothing to stop higher rate tax relief being abolished or limited similar in principle as the 50% limit.
Inheritance Tax has the benefit of the Conservative Manifesto of increasing the limit to £1m by 2014, which may be withdrawn or deferred, yet Potential Exempt Transfers are favourable under current legislation, so there was a view of possible changes.
What about the increase in Environmental taxes linked to property? Could this happen?
All in all, lots of discussion but with the realisation that the country needs your cash, there is now no where to hide…unless of course, you become a tax exile….
In one of the presentations, in a roll play scenario, the assumed question of a client to the tax adviser was “What are rules for being non resident?” The answer not long ago was relatively clear. “183 days and the 91 days on average rule”. However, the reply today is “I don’t know”
There have been staff changes at HMRC and the 91 days is being challenged, because it’s arbitrary and not in statute. So there have been cases that the Commissioners are taking to court. Robert Gaines-Cooper is one such case.
Reed v Clark is another - The Clark, being Dave Clark from the Dave Clark 5. Perhaps “Catch us if you can” is appropriate!
I digress. I was interested in how some forward thinking accountants stood on the harbour handing leaflets out to long distance lorry drivers helping them claim non-residence status. Yet, lorry drivers and pilots seeking non residence are finding qualification rather difficult as the HMRC is out to catch them. Of course, that is a broad generalisation, but if you catch my drift…they may not be singing the Dave Clark song for long :).
So when you say to yourself, I've have had enough of this country and decide to go abroad, hoping to claim non residence status, it's not that simple. Obama wants to catch all the tax dodgers and so does every other large country.
When the tax conference raises the question about the tax landscape…is it changing? My guess it is. And fast. What’s your guess?
posted by Murray Round Wealth Management @ 09:48,
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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