MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for the ‘Kickbacks’ Category

Will the US be Next to Ban Kick-backs?

Wednesday, June 15th, 2011

The initiative of the UK’s FSA (Financial Services Authority) to ban kick-backs from next year on is drawing attention all over the world. Financial Planning Magazine asks: Will the US be next to ban commission-based advisors? We hope so.


Is Financial Education Bad for Private Investors?

Wednesday, June 8th, 2011

A recent article on MarketWatch claims that

“financial education, for some consumers, appears to increase confidence without improving ability, leading to worse decisions.”

The report goes on that it appears that investors need professional help because,

“… there are the expert skills, skills that are good to have but best left in the hands of a professional. With driver education, it’s changing brake pads; with money it’s asset allocation, risk management and security selection”

Great advice - give your wealth to a professional and join the 80% or so of actively managed portfolios that are underperforming their market benchmarks. There may be a lot wrong with personal finance education. One major reason probably being that its mostly in the hands of self-styled “experts” who are not aiming for education but who are trying to sell one or the other investment product using personal finance books and education as marketing tools.But true financial education for private investors should not be complex, difficult or confusing, and it should be definitely not done by those who have a clear conflict of interest.  It should be simple, straight-forward and independent from banks or other financial players who are following their own special interests.

Running your own portfolio is not difficult. In fact, it is quite simple - at least compared to the skills you need to drive a car: Have clear objectives, understand your risk profile and invest in simple, index-based products. But there are only very few professionals who want to teach this gospel. Probably, because the professionals won’t make a lot of money based on these simple but effective strategies.


Labor Unions and Wealth Managers Team Up

Thursday, January 20th, 2011

The German minister for consumer protection has announced to send under cover investigators to banks’  wealth advisors to check whether their advice is following the rules and to identify possible weak spots. This latest government measure to protect consumers comes after repeated reports of banks who are  often pushing products with heavy commissions (kick-backs) into the portfolios of their private clients.

All this has lead now to a coalition between wealth managers and the biggest German service employees union. According to reports by the SPIEGEL the union has already collected 60′000 signatures against the new measure to protect bank clients. The report is here (German only).

I think this is great: greedy bankers and leftist unions unite to keep exploiting the consumer. If only Karl Marx knew about this, he would roll over in his grave…


Financial Times Quotes MyPrivateBanking on Anti-Kick-Back-Initiatives

Monday, December 6th, 2010

The Financial Times is quoting MyPrivateBanking’s research director on how kick-backs are on the (slow) retreat in Europa. Frequently, fund sponsors and other financial product providers are paying kick-backs or commissions to private banks and wealth managers when they sell their products to clients. This happens often without disclosing the commission to the private banks’ or wealth managers’ client:

But as in the UK and US, the European Commission and some national governments on the continent are laying track for more consumer and investor protection measures. “That’s a big force - not directly for fee-based consulting, but for more transparency, more disclosures, more fairness, whatever that might be,” Mr Binder says. “There are a number of regulatory initiatives right now - where banks have to disclose the ‘kickbacks’ from fund firms and fund sponsors, for example - that will have the effect at the end of day for more consulting to look like fee-based consulting.”

MyPrivateBanking has just released a report on fee-only financial advice in Germany.


German High Court: Only Banks Must Disclose Kickbacks

Monday, June 14th, 2010

A few days ago the German high court (Bundesgerichtshof, the news is here but only in German) has made a landmark decision on transparency of commissions. The court came to the conclusion that only banks have an obligation to make all fees and commissions transparent to their clients. However, in the case of so-called independent advisers the court requires no mandatory disclosure.

In effect, this decision is a big step back for private clients in Germany. Financial product distributors like MLP or AWD have millions of clients in Germany but also in other countries like Switzerland. With this court decision they are encouraged to keep secret the kick backs they receive when they push certain products into the portfolios of their clients. The consequence of this decision is that the term “independent financial adviser” is probably as misleading as it gets.

The only good part is that the court has re-affirmed its older decisions that banks (as opposed to independent advisers) are required to be transparent to their clients. The financial industry is terrified about more transparency when it comes to investing their clients’ money. This explains the make-no-prisoners-resistance against any step of more transparency. But the industry should make no mistake. Clients become more and more aware of this conflict of interest and are increasingly ready to switch their providers. It is not too late yet for voluntary transparency yet.


Bloomberg on MyPrivateBanking

Thursday, March 25th, 2010

“Ninety percent of wealth-management clients are not aware of the costs they pay indirectly,” said Binder, 43, who in 2008 co-founded, a Kreuzlingen, Switzerland- based firm that provides research and analysis on the private- banking industry. “If they invest in relatively expensive alternative products it can be a huge amount.”

That’s from an exclusive story Bloomberg published yesterday on MyPrivateBanking and the wealth management industry in general.


German Government Pushes for Kickback Transparency

Thursday, February 18th, 2010

The government of the German state (”Bundesland”) Baden Württemberg has started an initiative to force banks to disclose all kickbacks and commissions. The minister for consumer protection Peter Hauk (a member of the conservative CDU) said that he will soon bring this new regulation to the Bundesrat (the parliamentary chamber that represents the German states). The Minister encouraged the banks to support the new law because more transparency for banking clients will in the long-run strengthen the international competitiveness of the German banking industry.

The initiative is a logical next step after the new MIFID regulation has already compelled banks to keep written minutes of all client meetings detailing the recommendations that were made to the client. MyPrivateBanking research analysts expect that in the long run the reception of  kickbacks by banks and wealth managers will get completely banned.


Creative Performance Measurement

Tuesday, December 8th, 2009

“Calculation of performance is based on the time-weighted return and excludes front-end fees. Individual costs such as fees, commissions and other charges have not been included in this presentation and would have an adverse impact on returns if they were included.”

That’s the typical wording you find in the fact sheet of your common mutual fund. Ok. Let me get this straight. If  that fund company would be a car manufacturer they would say the total yearly costs of running this car is x dollar. And in the small print they would state: Costs are calculated without taking in account fuel, repairs, maintenance and the cut the dealer gets for selling the car.

Right ! What is next? Fund performance measured by taking out all years with double-digit losses? I understand that the fund industry feels the heat from the ETFs that deliver the same or better performance at a third or less of the costs. But this kind of “creative” fire-fighting adds to the frustration about funds as an investment vehicle in general. It’s time to change the rules and include ALL cost in the performance calculation of a fund.


Independent Advise Slowly But Surely Gaining Ground

Tuesday, October 27th, 2009

Independent advise is slowly gaining ground in Germany: two leading direct banks, comdirect (majority-owned by Commerzbank/Dresdner Bank) and Cortal Consors (part of the french BNP group) have now started to offer fee based, independent advise to their clients. Both banks claim that they offer a best-of-breed model whereby the clients are offered the best products regardless of the issuer. Clients receive a refund for any kickbacks (retrocessions) the bank gets from the product issuer.

Cortal Consors commented in the press that clients are not yet storming their offices in order to sign up for the new advise model. However, the bank sees an interesting potential in the future.