MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for October, 2009

UK Government Now Also Pressuring Overseas Offshore Centers

Thursday, October 29th, 2009

The Wall Street Journal reports:

“The U.K.’s myriad overseas territories and crown dependencies must improve standards on financial regulation and tax information-sharing and should broaden their tax base or face possible consequences, a U.K. treasury commissioned report said Thursday.”

This is just another indicator of how rapidly offhsore banking is losing ground on a global scale. The UK responds to complaints by Austria, Luxembourg, Switzerland and other offshore centers that the UK government is attacking foreign financial centers while protecting its own financial offshore centres overseas. This move will increase the pressure especially on Austria and Luxembourg to move towards automatic data exchange on bank clients who hide assets under the protection of the banking secret in Austria or Luxembourg.


Life and Death Struggle with Piranhas

Thursday, October 29th, 2009

“People do not seek employment in investment banks, brokerage houses, and mutual fund companies with the same motivations as those who choose to work in fire departments or elementary schools. Whether investors know it or not, they are engaged in an ongoing zero - sum, life - and - death struggle with pirhanas, and if rigorous precautions are not taken, the financial services industry will strip investors of their wealth faster than they can say ‘Bernie Madoff’.”

This is from the latest book of the famous William J. Bernstein. It is called “The Investor Manifesto” (and the first two chapters are available online for free). Bernstein is also the author of  the bestselling books (among others) The Four Pillars of Investing and The Intelligent Asset Allocator.


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.


Wealthy Demand Higher Taxes…

Monday, October 26th, 2009

… in Germany! 44 wealthy people have founded an initiative that demands an extra wealth tax on all fortunes of more than Euro 500,000. On the weekend they have staged a demonstration in Berlin. The argument is that “if they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said [Dieter Lehmkuhl] the retired doctor and heir to a brewery“.

The majority of the 44 members of this group has inherited their wealth.


USD 93,000 for a Chateau Petrus

Thursday, October 22nd, 2009

It seems that Hong Kong has overtaken London as a wine auction hub. We are just wondering how long this party can go on… But in the meantime we say, as the french do, santé.


Is This the Future of Investing?

Wednesday, October 21st, 2009

Recently two new platforms have gained a large followership on the Internet: It is kaChing and Covestor Investment Management. According to the New York Times, kaChing has 400,000 registered members. Both platforms work in a similar, simple way: Become a member, look at other investors (some of them professionals) and invest along them. You can see the track records, detailed portfolios and trades of other investors.

On both platforms you can automatically make the same trades as the investors you have chosen. In a way this is the Web 2.0 version of the mutual fund except for much lower costs to the retail investor. However, the same cautious rules apply: Before you bet on one of  the investing geniuses on either platform, make sure you have thoroughly checked their track record, investment strategy, risk profile and portfolio.

I can definitely see that these platforms can, over time, become a serious competitor to the less transparent, inflexible fund industry.


Mutual Fund “Fee Blinders” and the Rise of ETFs

Monday, October 19th, 2009

On the weekend I came across two very interesting pieces that fit right into our past discussions:

The Wallstreet Journal recommends to all investors to take off their “fee blinders” when it comes to mutual funds. Research shows that investors become less sensitive to fund fees when the market rises. The article makes two very good suggestions: 1) Monetarize the fees you pay in absolute USD terms (or Euro if you want). 2) Run a shadow portfolio with indexes or low-cost-index-funds that match your actual funds and watch the performance difference grow in favor of the indices (most likely due to higher fees of your funds).

Barrons reports that “total ETF assets across the universe of 768 funds reached $695 billion as of Sept. 30, up from a mere half-billion dollars in 1993, with most of that increase having come in the past five years“. Wow!


Many Hedge Funds Misrepresent Truth

Thursday, October 15th, 2009

A paper from the Stern School of Business reports:

“We find that misrepresentation about past legal and regulatory problems is frequent (21%), as is incorrect or unverifiable representations about other topics (28%).”

The researchers have looked at 440 hedge funds that had to undergo due diligence. We are not surprised - given the non-existent transparency of the sector. What we find even more annoying is the fact that wealth managers keep pushing these products into the portfolios of their clients. In our Private Banking Report 2009 we found that about 20% of assets were allocated to so called “alternative products” in the investment proposals of the banks (this category includes hedge funds and private equity among others).


Fund Manager Attacks Hidden Charges

Wednesday, October 14th, 2009

Alan Miller, the founder of New Star Asset Management, has attacked in the Telegraph the fund industry for hiding costs from investors. He described the practice as disgraceful and  called for the TER (Total Expense Ratio - an interesting case of misnaming) to be replaced with a calculation that includes all charges. We applaud! We also hope that Pictet’s Stephen Barber is a reader of the Telegraph.


Why Pictet Is Wrong

Friday, October 9th, 2009

Yesterday we have released our latest report on the performance of equity funds associated with the biggest wealth managers and private banks. The bottom line was that about 80% of the funds missed their benchmark and 20% overperformed (we looked at the core funds, actively managed, for Europe, Asia, USA and Global). Now, this is hardly a new and surprising result - a lot of research has come up with similar data. Yet, it seems that a part of the private banking industry is not ready yet to look in the mirror and analyze hard facts and data. One journalist remarked to us, half jokingly during an interview, that we probably “are not gonna make lots of friends in the wealth management industry” with the study. True enough, one day later the boss of Pictet asset management, Stephen Barber, slammed the report as “totally meaningless” because of too narrow a sample of funds. (Pictet ranked number 10 out of 13 ranked asset managers.)

We  respond to Mr. Barber that if a wealth manager choses to offer broad based funds for European, Asian, US and Global equities, an investor must expect that the performance of those funds is a valid measure stick for the equity investment competence of this asset manager. To put it very bluntly: A broad based fund firm must be able to manage equities of the four global core regions well.

True, there might be many other funds offered by a fund manager. Yet many of them have only a short track record (because those poor performing funds get closed down or merged all the time and new ones started). Others have interesting investing themes like the “Pictet Agriculture Fund”. But how is this fund comparable to other funds and what would be a fair benchmark?

We don’t think that private banks are generally doing a bad investment job. But we think that there is room for improvement, especially as far as in-house products are concerned. Looking at the facts is a first necessary step. Research bashing is not.