MyPrivateBanking Blog
Daily Comments on the World of Wealth Management

Archive for May, 2011

Private Investors Who Use Advisers Are Underperforming

Tuesday, May 31st, 2011

A German-Italian study published by the universities of Frankfurt and Naples shows that clients who are using financial advisers are underperforming their peers who are using self-managed accounts. In addition, the study shows that clients using bank advisers are underperforming clients with independent advisers. Main reason for these results being the advisers’ fees and the conflict interest of banks which causes them to trade more often than required. Interesting throughout!

Here is the abstract:

We use two data sets, one from a large brokerage and another from a major bank, to ask: (i) whether financial advisors tend to be matched with poorer, uninformed investors or with richer, experienced but presumably busy investors; (ii) how advised accounts actually perform relative to self-managed accounts; (iii) whether the contribution of independent and bank advisors is similar. We find that advised accounts offer on average lower net returns and inferior risk-return tradeoffs (Sharpe ratios). Trading costs contribute to outcomes, as advised accounts feature higher turnover, consistent with commissions being the main source of advisor income. Results are robust to controlling for investor and local area characteristics. The results apply with stronger force to bank advisors than to independent financial advisors, consistent with greater limitations on bank advisory services.


Barrons: MyPrivateBanking Takes Extremely Sensible Position

Wednesday, May 25th, 2011

We have been very honored that Barrons - probably the most prestigious investor magazine worldwide - has mentioned and approved of our research about discretionary accounts:

“SPEAKING OF MADOFF’S TREACHERY and the demand for transparency, new research findings by MyPrivateBanking Research show that only 10% of the world’s top wealth managers publish performance data for accounts that give the wealth manager or private bank the authority to buy and sell securities at their discretion.

Even more unbelievable is that just 22% offer specific information about their fees. And just 8% offer at least a three-year track record on the performance of their discretionary accounts.

MyPrivateBanking, an online independent advisor to wealth-management investors, says its results are based on an analysis of public Websites, including all reporting documents that the 40 largest wealth managers worldwide put online. MyPrivateBanking takes the extremely sensible position that discretionary accounts are like mutual funds and should open their books in a similar manner. And investors who can’t get this information (and keep in mind, some favored-few heavy hitters probably do) ought to get out, and get out now.”


Bank Rip-Off of the Day

Thursday, May 12th, 2011

Felix Salmon reports about a Merrill Lynch client who is also active on Wikinvest:

“This guy probably knows that he’s paying his Merrill broker an annual management fee of 1.75%, which alone is more than $40,000 a year. But he doesn’t know that other Merrill clients in his position are paying far less - that Merrill brokers basically charge as much as they can, and the average Merrill client on Wikinvest pays less than half that, just 85 basis points.

“And there are other things this guy doesn’t know, as well, because they’re buried in his statements - things like the fact that Merrill charged him $5,763 to make 24 trades last year, over and above that $40,000 management fee. That’s about $240 per trade.”

From a European perspective this case would not even be among the most expensive fee arrangements. Looking at European private banks, overall fees of 200 basis points (2% of invested assets plus hidden fees, that come with the products) are not so uncommon. Check our research on open and hidden fees in wealth management accounts and what to do about it.


“I Love Values” - But Too Late It Seems

Monday, May 9th, 2011

“I Love Values”. This is the title of a recent advertising of Swiss private bank Vontobel, among the largest wealth management providers in Switzerland and Europe. You can have a look here (it’s in German only). The ad goes on to say, “I love to bring momentum to parked wealth”.

Well, well, well… I guess it’s about time to bring momentum to these parked accounts. Two years after markets have reached their lowest point and since have about doubled. The only interpretation of this ad seems to me that Vontobel has quite a few client accounts who were so unfortunate to stay out of the stock market for the last 2 years. I don’t know if Vontobel was among those private banks who have actively advised their clients over and over again to stay out of the markets and remain conservative while the markets have been climbing the wall of worry. As our private banking report from 2009 has shown conclusively, most European wealth managers were extremely conservative just when markets hit the bottom back then. But to proudly present this kind of pro-cyclical investment behavior in an advertisment seems somewhat incomprehensible to me.