MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for July, 2010

 

Credit Suisse: First Squeeze Them, Then Kick Them Out

Saturday, July 24th, 2010

It seems that over at Credit Suisse they are panicking about the tax probes lead by the Germans and other  European governments against offshore clients and also bank advisers. We have been contacted by former Credit Suisse clients, some of them long standing clients, who have been rudely kicked out as clients. We have credible information that even clients who legalized their holdings in Switzerland have seen their accounts canceled. Only few weeks ago Credit Suisse sent a letter to foreign clients with less than 1 Mio. Euro that they have to pay additional fees if they want to keep an account in Switzerland. MyPrivateBanking has copies of this letter.  We will follow up with this story next week and hope to get some comments from the CS management.

 

Why Investing Has Become More Democratic Than Ever

Tuesday, July 20th, 2010

I am pondering one sentence I stumbled upon today:

“It is ironic that the markets are now at their most democratic at time when returns are at their nadir.”

This is from the blog abnormal returns, a great source of financial debate. Basically, indivividual investors today have all the tools and vehicles to free themselves from unhealthy advice and make their own decisions:

“The ironic thing is that at a time of poor returns, the information and tools available for investors have improved dramatically. This is largely a function of the rise of Internet. Abundant data, cheap trades and an explosion in investment vehicles, i.e. ETFs, have made it ever more possible for individuals to manage their portfolios how the largest institutions did just a few years prior.”

I still think that this investor heaven is a far cry from what most private investors do today. Most individuals are still entrusting their wealth to a bank or a wealth adviser who is not free of conflict of interest when picking investment products for their clients. Most private investors still believe their advisers when they tell them how to time the markets or pick individual stocks or bonds. And on top of everything, most investors still pay way too much money to their wealth managers. It will be a long time until the majority of private investors really takes investing in their own hands. But, in any case, the revolution has begun and it offers too many advantages to individual investors to be stopped. Particularly in times of low returns the weaknesses of trading-oriented and active stratgies of most wealth managers become very clear to investors.

 

Deutsche Bank´s Wheel of Misfortune

Friday, July 16th, 2010

Deutsche Bank set another prime example on how to push dubious investment products in their client portfolios without taking on any risk, but charging absurd commissions.  In 2006 Deutsche Bank promoted a fund in Ferris Wheels called Global View. However, so far not ferris wheel has been built, but nevertheless the fund spend up €208 million for property purchases, banking fees and dubious project development costs. So it looks like the average  investors will incur huge losses, but how about the sponsor and sales arm of the fund Deutsche Bank ?

“For Deutsche Bank, though, the Ferris wheel project turned out to be very good business. The Frankfurt-based bank earned €19.2 million through Global View thanks to its client advisors, who drew in €160 million from the bank’s customers within the space of 10 weeks, primarily from German small investors like Schmidt. The bank itself, however, never invested in the fund. Global View used the bank Delbrück Bethmann Maffei (DBM) instead. Deutsche Bank preferred not to invest its own money in the project, for example through loans. Even when that money was badly needed, the bank declined on the basis of a “market risk” that couldn’t “be assessed and covered by the bank. [...]

The letters and e-mails raise suspicions that Deutsche Bank not only insisted on unusually high commission rates that were meant to be concealed from investors, but even doubted the project’s chance of success. From the beginning, the bank calculated using an “equity commission of 12 percent. The sales brochure was only supposed to show 10 percent, which called for a creative solution. One Deutsche Bank employee suggested in writing that the excess commission simply “no longer be shown in the brochure”.

To me that looks less like a creative but more like a criminal solution !

 

“Hedge Funds Are to Bankers…

Monday, July 12th, 2010

…what the German football team is to the English: a nimbler, more skilful exemplar serving to highlight the latter’s plodding predictability.”

I am not sure if this quote is more flattering to the Germann football team or to the hedge fund managers. It is from a book review in the Guardian about More Money Than God. Whatever you may think about German and English football, the book is worth a read.

 

WRONG! - How Bad Is the Advice You Get?

Monday, July 5th, 2010

Did you know that about two-thirds of the findings published in the top medical journals are refuted within a few years? It can get even worse: As much as 90% of physicians’ medical knowledge has been found to be substantially  wrong. In fact, there is a 1 in 12 probability that a doctor’s diagnosis will be so wrong that it causes the patient significant harm. These are some findings of the new book WRONG by David H. Freedman.

There are actually some very important implications the research of Freedman has for wealth management and investment strategies. In a recent Time interview he states:

“…there are certain experts who, not only is their advice very resonant, but they themselves are very resonant. Some experts project tremendous confidence. They have marvelous credentials. They can be very charismatic - sometimes their voice just projects it. Some experts get very, very good at this stuff. And what do you know? It really sort of lulls us into accepting what they say. It can take a while to actually think about it and realize their advice makes no sense at all.”

This is exactly what every investor should consider when sitting in his wealth advisers office, sipping a nice cup of coffee, listening to the latest analysis and investment proposals….

 
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