Category Archives: Financial Planning

Changing of the face of investors

We have moved, quite quickly, away from defined benefit (pensions) to defined contribution (401K) plans. This provides a company with the advantage of contributing and forgetting it but burdens the employee with management of their own retirement investments. Although many company plans are set up by reputable investment companies that offer a range of sound investment opportunities, once employment is changed, capital can rolled into just about any investment and there are plenty of sharks in the waters. This means that many will fail to invest wisely and end up on public assistance even though they had ample opportunity to do otherwise.

Is it cynical or maybe just realistic to predict more regulation?

Shouldn’t we be able to believe in someone?

In Senate hearings testimony was given by David Tice of David Tice and Associates. He testified that, “an analyst is just a banker who writes reports. No one makes a pretense that it’s independent.” He quotes Sean Ryan, a former banking analyst at Bear Stearns Co. when he explained his reasons for recommending NetBank like this: “I put a buy on it because they paid for it.” Ryan said he told clients that “we just launched coverage on NetBank because they bought it fair and square with two offerings.”

Further, Greg Hymowitz of Entrust Capital, a financial house for wealth investors and a former Goldman Sachs employee. He testified in defending current practice, “Investing is as humbling as golf. Every day is riddled with mistakes. Unfortunately, often the only way to learn in this business is from mistakes and that costs money. Investors have learned a hard lesson: with huge rewards come equally huge risks. The bubble has burst. Investors should not believe everything they read, hear or see.”

Shouldn’t we be able to believe someone? And who would that someone be?

Interesting point on commissions

Investment banking business if far more profitable than managing accounts for investors. Accounting firms make more from consulting than from auditing. Advisors make more from moving money from here to there than just holding it. No one is making more money for getting it right and often they make far more for getting it wrong.

Agency theory says that there is a cost to a principal for having an agent work for them because the goals of the principal and the agent are not totally aligned. In other words, the agent acts in their own best interest and that isn’t 100% in the best interest of the principal.

Is there anyway to align the goals of investors and those agents that they use during the investing process?