# Mum and Dad Investors vs. the Professionals



## The Owls (9 November 2009)

This is what I think:

We are all 'Mum and Dad' investors 

I have always found the term' Mum and Dad investors' irritating and condescending. It has connotations that all the financial gurus of the world make all the very wise financial decisions and allow the 'Mum and Dad Investors' to play around with the simple stuff in keeping with their lower levels of intelligence and expertise. 

Well, it has now become very clear to us all that the self-inflated financial intelligentsia, ie, our economic advisors, lending authorities, funds managers and financial advisors, despite the ominous warning signs, really didn't have a clue what was happening. Got it all wrong and at the end of the day, in the final shake-up, demonstrated to us clearly that they too are really only 'Mum and Dad Investors' - albeit, very highly paid!


----------



## Taltan (9 November 2009)

The truth is no-one knows where the market will go especially in the short terms of days, weeks and months. If anyone knew on Monday where the market would end the week, even with a 60% certainty they would not have to waste their time dressing up in a suit and sharing that knowledge.


----------



## cutz (9 November 2009)

The Owls said:


> demonstrated to us clearly that they too are really only 'Mum and Dad Investors' - albeit, very highly paid!




On ya Owls,

Hit the nail on the head, most managed funds can't even outperform the index so at the end of the day you're better off just running your own fund, it's not rocket science.


----------



## ChilliBlue (9 November 2009)

I agree totally that you cannot always trust someone else handling your financials. You need to be on top of the market and have a similar understanding on how thinks work as any professional.

On reading the week end financial lift out from Sunday Herald, some of the forecasts contridicted what was being said in their normal financial columns.

Not everyone is 100% right all the time.


----------



## Wysiwyg (9 November 2009)

Place someone in responsibility of large sums of money and their ego naturally inflates. Pompous, arrogant and untouchable is often corrected when back-slammed by the markets. Like some people don't respect others and become more `earthy` after a good gob-smack.


----------



## nunthewiser (9 November 2009)

After reading a few of your deep and meaningfuls over my time here, i have come to the conclusion you are quite a wise sort of non gender specific  poster Wysiwyg.

Have a great day.


----------



## Wysiwyg (9 November 2009)

nunthewiser said:


> Have a great day.



Sometimes over leverage with the sarcasm but it's a work in progress correcting that one. :


----------



## brty (9 November 2009)

Mum and Dad against the professionals?

Firstly identify the professionals, many of them are Mums and Dads, while many of the...

 "







> our economic advisors, lending authorities, funds managers and financial advisors




most certainly are not professional traders.

The real professionals were probably making money on the decline as well as the recent rally, they were making it at the expense of the M&D's who used the lot quoted above, and did not think for themselves..

Taltan,



> The truth is no-one knows where the market will go especially in the short terms of days, weeks and months.




Does that mean a system that has a 80%+ accuracy is just pure blind luck, despite hundreds of successful trades??

brty


----------



## rbourne1 (9 November 2009)

Its been a common theme since the onset of the GFC to blame 'professionals' for not being able to see what was coming. That's human nature.

What Mum and Dad investors should learn is to take control of their own finances through appropriate education and use professionals only when needed.


----------



## So_Cynical (9 November 2009)

I've always thought there were 'Mum and Dad Professionals' dominating the financial services industry, and pretty much all the industry's out there.

People tend to think that Professionals paid lots of money are smart and good at what they do....Bollocks.

These people finished Uni or got what ever qualification they required and therefore obtained employment in whatever industry...Pilots, Lawyers, Doctors, Financial advisers...these people are qualified not Necessarily competent.


----------



## Gordon Gekko (9 November 2009)

Financial advisers are nothing better then commission based salesmen.
They only thing they care about is how much commission they are going to get off you even though there office walls are full of family pictures.
I find it funny how they are moving to a fee for service model and now they are allot more likely to recommend a simple index fund.

FA's are going out the same way as scum travel agents and all other middle men who promise the world but when you need them......

Site's like this are great for opening peoples eyes!

G


----------



## condog (9 November 2009)

The single biggest problem with lots of the professionals is they are bound by sheer volume to divest into crap companies they should never be involved in.

The second biggest problem is half of them dont know a good company from a bad company. Some of them did a 3 day course, got a job , worked there way up through an industry riddled with massive staff turnover and suddenly find themselves controlling a $0.5Bn portfolio of other peoples money....when they dont even know how to grow their own wealth...

As for managed funds, again the volumes and rules of the prospectus severely inhibit their ability to stay in good stocks and their ability to move as required....as they become bigger they diversify into crap......

Over the years you consistently see small upcoming boutique funds outperforming, and as soon as they become large, go through mergers and acquisitions they inevitably start to under perform......

Having said that they have there time and place......just not for me thanx

Go the mums and dads, with some experience  your / we are doing far better then most the so called professionals....


----------



## condog (9 November 2009)

Gordon Gekko said:


> Financial advisers are nothing better then commission based salesmen.
> They only thing they care about is how much commission they are going to get off you even though there office walls are full of family pictures.
> I find it funny how they are moving to a fee for service model and now they are allot more likely to recommend a simple index fund.
> 
> ...




Of many , this is so true......


----------



## kam75 (9 November 2009)

The Owls said:


> This is what I think:
> 
> We are all 'Mum and Dad' investors
> 
> ...




Nonsense.  Mum and dad investors are the classic buy and hold type.  Little or no idea of what they're doing. Usually buy some shares of Telstra or Westpac after its in the news, near the market top.


----------



## cutz (9 November 2009)

kam75 said:


> Nonsense.  Mum and dad investors are the classic buy and hold type.  Little or no idea of what they're doing. Usually buy some shares of Telstra or Westpac after its in the news, near the market top.




Don't underestimate the classic mum and dad investor, many bought into government IPO's years ago and are now sitting on tidy profits, much better profits than many wannabe traders can ever achieve.

Nothing wrong with buy and hold ( within reason  ).

Also, nothing wrong with short term trading, it's a great way to get some cream.


----------



## doctorj (9 November 2009)

To my mind, 'Mum and Dad' investors are any investors that are takers of price and/or conditions, rather than makers. Institutional investors get priority access to management, negotiate the price and often have terms not accessible by 'Mum and Dad'.

Institutional investors set terms/price because they bring many things to the company - the ability to invest further capital to support growth, credibility/reputation, management, industry and capital markets expertise, connections etc etc. Mum and Dad's are just along for the ride and only there because the IPO was an attractive source of liquidity for the institutional investors to exit at placement or in the future.


----------



## skc (9 November 2009)

This discussion goes on as if there is a market independent of the professionals (i.e. institutional holders).

How can all professionals be right when the market is the result of the professionals? Doesn't the share market fall because all professionals decided to sell? So were they right or wrong? I am confused. 

And by definition the average professional will have to underperform the market, because market performance = professional performance minus fees and charges.


----------



## Julia (9 November 2009)

kam75 said:


> Nonsense.  Mum and dad investors are the classic buy and hold type.  Little or no idea of what they're doing. Usually buy some shares of Telstra or Westpac after its in the news, near the market top.



Yes, this has been my experience amongst a broad cross section of people I know.  Along with the complete misconception that "Super" is a failure and a con.  They do not understand that Super is simply a tax effective vehicle in which to hold various investments.

I'd say one of the reasons we agree that the 'professionals' have failed so badly in the last couple of years is that those frequently making market pronouncements are economists.   A degree in economics doesn't necessarily qualify someone to be an expert in share markets.  Ditto an accountancy degree.

Then when we come to the woeful performance of financial advisers, let's remember that most of these had their own interests in mind when they advised clients to 'just hold on:  it will all be just fine'.  Had their clients moved out of managed funds to cash, whacko, there would go their trail commissions.  So let's not have that!


----------



## gooner (9 November 2009)

Julia said:


> Yes, this has been my experience amongst a broad cross section of people I know.  Along with the complete misconception that "Super" is a failure and a con.  They do not understand that Super is simply a tax effective vehicle in which to hold various investments.
> 
> I'd say one of the reasons we agree that the 'professionals' have failed so badly in the last couple of years is that those frequently making market pronouncements are economists.   A degree in economics doesn't necessarily qualify someone to be an expert in share markets.  Ditto an accountancy degree.
> 
> Then when we come to the woeful performance of financial advisers, let's remember that most of these had their own interests in mind when they advised clients to 'just hold on:  it will all be just fine'.  Had their clients moved out of managed funds to cash, whacko, there would go their trail commissions.  So let's not have that!




True.

But always worth remembering that not everyone can avoid the big crash. Once shares are overvalued, someone HAS to lose if they move to fair value.  If the advisors all suddenly realised the crash to come and advised clients at the same time, there would not have been anyone to sell the shares to at then current prices, as they would all be sellers.

I guess they could have moved clients to cash management trusts and still got their fee. But in general, financial advisors are bought up on the "it's time in the market, not timing that is important". Suspect most advisors do not even see as their job to flag that markets are overvalued.

Many instos would not have been sellers in core funds, as mandates only allow a small amount of cash.


----------



## sleeper88 (10 November 2009)

This may be a bit off topic, but I've realised there are so many people out there (mainly "mum and dad" investors) who invest in shares when they don't have a clue what they're getting into. It absolutely shocks me that people can plough their life savings into a company with out doing research. And when it all goes wrong, they dont grasp the knowledge that there isn't any money left for them! (e.g. ABC, Alco, B&B, etc etc)

It's really time to wake up.


----------



## Kremmen (10 November 2009)

Gordon Gekko said:


> Financial advisers are nothing better then commission based salesmen.
> ...
> FA's are going out the same way as scum travel agents and all other middle men who promise the world but when you need them......




There are two problems with such sweeping statements:

1) Some people are stupid. I agree with you about travel agents, but that's because I travel a lot and I know the fare classes, fare rules, upgrade rules, etc, for routes I care about better than they do. However, there are people who simply won't cope with working all that out for themselves, or don't want to. Some people, like these need a travel agent. Similarly, even a below average financial advisor will be better for some people than doing it themselves, which would mean leaving their money in their cheque account forever.

2) There are good financial advisors. Those few who have obtained the qualifications in their own right are a good place to start. The majority of financial advisors are indeed salesmen, but they're also mostly just hanging off the coat-tails of a major corporation's licence and have no qualifications in their own right, so they're not hard to spot.


----------



## Julia (10 November 2009)

sleeper88 said:


> This may be a bit off topic, but I've realised there are so many people out there (mainly "mum and dad" investors) who invest in shares when they don't have a clue what they're getting into. It absolutely shocks me that people can plough their life savings into a company with out doing research. And when it all goes wrong, they dont grasp the knowledge that there isn't any money left for them! (e.g. ABC, Alco, B&B, etc etc)
> 
> It's really time to wake up.



Even more broadly, it has been really surprising how many people didn't understand what was happening (or weren't interested) in the last two years, and subsequently find themselves working years longer because they didn't consider temporarily moving their Super or managed funds to the cash option.
"Super" is probably a whole other subject.


----------



## rbourne1 (10 November 2009)

Julia said:


> Then when we come to the woeful performance of financial advisers, let's remember that most of these had their own interests in mind when they advised clients to 'just hold on:  it will all be just fine'.  Had their clients moved out of managed funds to cash, whacko, there would go their trail commissions.  So let's not have that!




From many of the posts I have read I think there is a general misconception about what a financial adviser's role actually is. To blame them for not being able to forsee the GFC and cash every client's investments out shows that the public and Mum and Dad investors need more education on what a financial adviser's role actually is. 

If you are talking about ethical advisers (and yes, there are many out there), then it has nothing to do with working on a commision model or fee for service. How many fee for service advisers do you know that recommended cashing out to all their client base?

If the public's perception of advisers is that of day traders and able to forecast every market movement, then they have been badly misguided. An adviser's role is rightly focused on long term strategies, because they, nor anybody else cannot predict short term movements in the markets. It's not just about investment performance. The good advisers should be looking at all the issues that contribute to making a person's life complete by providing them with an understanding of investments, estate planning, insurance, retirement planning and even how to lead a healthy life. 

The adviser's limitations are not set by the fee model but more by the restrictions of the legislation. The FSR Act requires an SOA everytime advice is given. If advisers were to become short term investment advisers then what mum and dad investor could afford the cost of preparing such advice, particularily on a fee for service model.

I'm not advocating a commission model is any better, that's another debate.  I just believe the public need to be better educated about a financial planner's role. If the public understood the limitations placed on advisers through legislation, restrictive APL's, biased dealer groups and research houses then they would understand the need to take control of their own finances through appropriate education programs.


----------



## Taltan (10 November 2009)

brty said:


> Does that mean a system that has a 80%+ accuracy is just pure blind luck, despite hundreds of successful trades??
> 
> brty




What are you calling accuracy? Yes a syatem that 80%+ knows if the stock will be up or down by the end of the week does not exist. If anyone had such a system and a year 8 level understanding of statistics they would be richer than Gates & Buffet so obivously no-one has such a system.


----------



## skyQuake (10 November 2009)

Taltan said:


> What are you calling accuracy? Yes a syatem that 80%+ knows if the stock will be up or down by the end of the week does not exist. If anyone had such a system and a year 8 level understanding of statistics they would be richer than Gates & Buffet so obivously no-one has such a system.




That 80% accuracy is curve fitted and only works in specific time periods...
Or it averages down so it doesn't "lose" as often.


----------



## Mr J (10 November 2009)

Taltan said:


> What are you calling accuracy? Yes a syatem that 80%+ knows if the stock will be up or down by the end of the week does not exist. If anyone had such a system and a year 8 level understanding of statistics they would be richer than Gates & Buffet so obivously no-one has such a system.




You're not considering the risk-to-reward ratio or the possibility that none of these systems scale that well, or that none of them have had enough time in the market or enough trades to rival Buffet.


----------



## Taltan (10 November 2009)

Maybe I'm misinterpreting risk to reward ratio but take any stock you like. If it were possible with an 80%+ accuracy to know whether it will be lower or higher at the end of the week than one could easily through the use of CFD and other derivatives make a lifetime of fortune in a maximum of approx 8 weeks. Even on a longer month by month timeframe you could make a killing if you knew anything with 80% certainty. This is my point no-one has that level of certainty (apart from insider trading instances)

Investment managers usually do slightly better than average (although this gets gobbled up in their fees) because they have more insider information, more access to management etc.


----------



## prawn_86 (10 November 2009)

I think the difference between what Taltan and brty and Mr J are saying is that brty and Mr J's comments are to do with systems that have 80% accuracy, in hindsight. That is to say that the system has performed at a 80% win rate so far, but may change in the future. Just because it has performed like that in the past, does not mean it will if market conditions change.

What Taltan is saying (imo) is that is you knew 80% of the time if a stock would be higher or lower _in the future_, then you could make a fortune.


----------



## Mr J (10 November 2009)

No, I'm talking about hitting 80% going forward. Taltan is saying that 80% going forward would make a fortune, but then states it can't be done since it is obvious nobody has done it. I'm saying that is not necessarily true - just because we don't know about it doesn't mean it doesn't exist. I'm sorry, but I don't like statements of certainty in situations where there can be no certainty.


----------



## Julia (10 November 2009)

rbourne1 said:


> From many of the posts I have read I think there is a general misconception about what a financial adviser's role actually is. To blame them for not being able to forsee the GFC and cash every client's investments out shows that the public and Mum and Dad investors need more education on what a financial adviser's role actually is.
> 
> If you are talking about ethical advisers (and yes, there are many out there), then it has nothing to do with working on a commision model or fee for service. How many fee for service advisers do you know that recommended cashing out to all their client base?



Thanks for your comments.  Presumably you're a financial adviser or have a close connection to same?

I stand by what I said about cashing out being a sensible strategy for the GFC.  To say that it's unreasonable to expect FA's to have understood what was happening is simply unrealistic imo.  Many of us who have no formal qualifications in finance didn't have any trouble appreciating the seriousness of the situation.  There were daily reports on most media about the deterioration in the American, British and European economies every day from the collapse of Lehman's on.   

How many fee for service advisers do I know who recommended anything?
None.  I don't know any fee for service advisers.  I have known several commission-focused advisers.

My remarks were based on the frequent public assurances by people like Noel Whittaker, et al who - as people worried about their falling Super balances - continued to promise that it wouldn't be too serious and to hold on.

That might be fine for young people who have many years of saving ahead, but to include people close to retirement or already retired in that advice has imo caused them considerable distress and in many cases necessitated their having to work longer than they'd planned.

Had the funds been moved to cash early in the downturn, and when interest rates were still quite reasonable (7 - 8%), the capital would have been largely protected, and the funds moved gradually back to equities as the recovery became evident.




> If the public's perception of advisers is that of day traders and able to forecast every market movement, then they have been badly misguided.



I haven't suggested at all that advisers should adopt day trading strategies for their clients.  Simply the protection of capital for people within a few years of retirement.


> An adviser's role is rightly focused on long term strategies, because they, nor anybody else cannot predict short term movements in the markets.



Depends on how you classify 'short term movements in the markets'.
I don't think a two year (and possibly much longer) fall of the proportion we've just had can be so classified.



> It's not just about investment performance. The good advisers should be looking at all the issues that contribute to making a person's life complete by providing them with an understanding of investments, estate planning, insurance, retirement planning and even how to lead a healthy life.



Agree absolutely, but I'm not sure how often this happens.  I'd say, though, that protecting their financial situation should be pretty high on the list when it comes to the responsibilities of financial advisers. 



> The adviser's limitations are not set by the fee model but more by the restrictions of the legislation. The FSR Act requires an SOA everytime advice is given. If advisers were to become short term investment advisers then what mum and dad investor could afford the cost of preparing such advice, particularily on a fee for service model.



Again, as above, I don't think protecting a client's capital when they are nearing retirement should be neglected because the adviser is required to issue a new SOA, and if the relationship is on a fee for service basis, then I'd guess most investors would happily pay a few hundred dollars to save many thousands, or in some of the cases I've known, hundreds of thousands.



> I'm not advocating a commission model is any better, that's another debate.  I just believe the public need to be better educated about a financial planner's role. If the public understood the limitations placed on advisers through legislation, restrictive APL's, biased dealer groups and research houses then they would understand the need to take control of their own finances through appropriate education programs.



Well, we certainly agree about people needing to take control of their own finances - no argument there.

Thanks for making the points you have.  It's a discussion worth having.


----------



## Temjin (10 November 2009)

Julia said:


> I stand by what I said about cashing out being a sensible strategy for the GFC.  To say that it's unreasonable to expect FA's to have understood what was happening is simply unrealistic imo.  Many of us who have no formal qualifications in finance didn't have any trouble appreciating the seriousness of the situation.  There were daily reports on most media about the deterioration in the American, British and European economies every day from the collapse of Lehman's on.




I would like to correct this on my experiences in the events leading to the GFC and the aftermaths. 

While I'm not defending those financial planners, I think it is inappropriate to lay the blame on them for failing to predict the GFC and did not advise their clients to cash out just before the market crash. This is despite to the number of "warnings" out there.

The signs may have been obvious to those who have been "listening" to the right sources, but certainly not if most financial planners, or even the general public, have been listening to the mainstream news. The potential crash was actively made understated prior to the events. This is clearly evident, the subprime crash would not affect global markets, blah blah blah, etc.  Mainstream news were largely biased in being extremely optimistic about the future (and still is!) and to most people, they would have never foresee the crash with any certainty. 

Exceptions of course, if their financial advisors were the only few economists/bloggers, who predicted the crisis and actually did GAVE FIRM ADVISE to get out on a particular date or else. 

However, very few financial planners would have the ability to take heed to those advises (let along actually FIND THEM) and then actually advise their clients to take actions. My opinion is that it's quite unfair to blame them for their incompetence with the amount of misinformation and massive amount of media biases out there. This along with all other corporate requirement of selling approved product lists, maintaining sales target, etc, etc, would have certainly hinder them from making such good advises. 

At the end, it may have been obvious to some of us, but it certainly wasn't to a lot of people including ultra rich investors / high profile economists. Some of them never saw it coming. How do you expect a common financial adviser to do the same?  



> How many fee for service advisers do I know who recommended anything?
> None.  I don't know any fee for service advisers.  I have known several commission-focused advisers.




I've already posted in another thread stating the fee for service advisers will eventually be made compulsory by 2012. Hopefully that would improve the "bias" problem by slightly. 



> Had the funds been moved to cash early in the downturn, and when interest rates were still quite reasonable (7 - 8%), the capital would have been largely protected, and the funds moved gradually back to equities as the recovery became evident.




As I said previously, no one could have, with absolutely certainly, predicted the timing of the crash, or the recovery, and the magnitude of it. It's certainly not the role of a financial adviser to make such predictions. They certainly wouldn't do it either even if they have been sourcing from the right information. Fear of litigations if their predictions were not correct would have deter more advisers from making such predictions. 

This is as simple as, if my financial advisers asked me to cash out just before the crash, but buy back in half way down and suffered lost, then should I held my adviser's liable for misleading me? Yes, in the current laws, you can and have been done. This probably even true when the lost of income/profit opportunities is extremely large. 



> I haven't suggested at all that advisers should adopt day trading strategies for their clients.  Simply the protection of capital for people within a few years of retirement.




That I agree, and my understanding of what financial advisers do is that they generally recommend asset allocation for retirees to be in the income area and less in capital speculations. Preservation of capital and focus on income. Of course, human greed bypass that. The clients could easily override their advisers' decisions, and corporate need to sell financial products (growth funds) also affects it. 




> Well, we certainly agree about people needing to take control of their own finances - no argument there.
> 
> Thanks for making the points you have.  It's a discussion worth having.




No argument there, we all agree on this. 

Take your own control and blame no one else but your own.


----------



## Wysiwyg (10 November 2009)

Advice is right or wrong in hindsight. We seek to pay for right advice and complain when (in hindsight) it is wrong. As if there is no thought that wrong advice is indeed a real possibility.


----------



## ROE (10 November 2009)

Keep your inner score card 

who care what people called you or classified you ...
I'm a mum and dad investors and I take on the Market and the fund managers every day.

they can called me Mr mum and dad investor or Joe average investor or un-sophisticated investors.
simple is best when it comes to money .... the simplier you are, the more money you makes


----------



## Krusty the Klown (10 November 2009)

I've noticed that financial planners cop a pasting on this site, but never any mention of "stock brokers" copping any flak.

Or are they just included in the "financial adviser" catch all?

Considering that financial planners can allocate assets in to cash, mortgage, and property funds etc, a stock broker would be using mainly direct equities.

Therefore personal broker portfolios should have performed even worse than a planner who has the diversification of other asset classees.

Anyone come across any broker fallout through the GFC?

I know of one stock broker in a regional town who was afraid to leave his house for fear of being shot or beaten up.


----------



## rbourne1 (10 November 2009)

Thanks Julia for your detailed response. Yes, I make it too obvious that I'm a fa but I agree with many of your concerns.

Hindsight is a wonderful thing and cashing out for the GFC makes sense after the event. You infer from your comments that many informed investors (not using a fa) would have used this strategy. I wonder how many did. It would make a good comparison.
Let me ask you a question to perhaps put the issue into more perspective.

If you were the adviser, at what point in the GFC would you have told your clients to 'cash out'? Using the ASX 200 index as a guide and given it was at its high around 6800 sometime in October 2007 (was it that long ago?!) and reached a low aound 3100 in early march this year? 

You are right in that the media was not short in providing all types of warnings and news about the events (sub-prime) leading to the GFC but I'd be interested in knowing if there was any particular news item or movement in the market which would have persuaded you to make the call to 'cash out'

And assuming you did cash out, would you still be sitting in cash now or would you have entered back into the market at some stage?  Again, You infer that you would be back in the market but I'd be interested in the reasons (I'm always learning!)

I agree with you that anyone close to retirement has probably been more affected but I would also argue that they should of had an appropriate investment strategy in place. For anyone approaching retirement (within 3 years) I would suggest a conservative approach of always having at least 3 years of income set aside in 'defensive' assets. If the balance of their investments are in 'growth' assets then they have 3 years before they have to draw down on those investments. History shows that most markets recover in this time frame. The GFC will probably not fit this scenario but we'll have to wait another 12 months to see.

Many of my retired or soon to be retired clients using this strategy would be down 5 to 15% on the highs of October 2007 which under the circumstances is not a disaster. 


My definition of short term is 12 months or less and in the context of the point I was making I believe it unreasonable to expect fa's or anyone to be able to time market entry and exit points when investing long term.   

There is a need for ethical fa's in this world but only because many people choose not to take responsibility for their own decisions or finances. Those that don't are usually the first to point blame when things go wrong. Nicolas Cage is a fine example of that.

Good discussion. Thanks Julia.

Rob.


----------



## Kremmen (10 November 2009)

Julia said:


> I stand by what I said about cashing out being a sensible strategy for the GFC.



Only in hindsight and only if you knew how deep the slump would be.

If the slump had been less and the rebound had been sooner, people who cashed out could have simply been left worse off than they started, because of massive capital gains tax bills. ... And then they'd have been abusing their financial advisor for wrecking their investments!


----------



## rbourne1 (10 November 2009)

That's a good point Kremmen. There are also those clients (I had some) who voluntarily cashed out near the bottom (3500) and are still sitting in cash. Who knows, maybe the market will fall below 2000 so they can justify their decision.


----------



## Gordon Gekko (10 November 2009)

I fired my Financial adviser in Aug 07 after a meeting in which he told me that I had a 28% return for the previous year.
I did this because I finally figured out exactly how much I was paying for the service. 
4% contribution fee as well as 1.75% MER as well as all the other money he was being paid in yellow envelope payments from fund managers or who ever.

When I asked for a breakdown in fee's he wouldn't give it, so I figured it out on my own.

I also figured out that my managed funds were index huggers, where is the added value to justify a FA over an index fund or ETF?

At the end of the day I was learning and expected the FA to meet me twice a year and be in regular contact with regard to my investments. After I signed on the dotted line I never heard from him again.

Fee for service will be no better.


Best
G


----------



## gooner (10 November 2009)

Gordon Gekko said:


> I fired my Financial adviser in Aug 07 after a meeting in which he told me that I had a 28% return for the previous year.
> I did this because I finally figured out exactly how much I was paying for the service.
> 4% contribution fee as well as 1.75% MER as well as all the other money he was being paid in yellow envelope payments from fund managers or who ever.
> 
> ...




If you were paying 4% upfront and 1.75% ongoing for an index fund then you were being seriously done over. Given the weighting of the top 20 companies in the various indexes, all you have to do is buy the top 20 shares according to weighting and you are very very close to having a ASX 100 index fund. All for the price of small brokerage upfront and occasional reweighting if you so choose.


----------



## alphaman (10 November 2009)

gooner said:


> Given the weighting of the top 20 companies in the various indexes, all you have to do is buy the top 20 shares according to weighting and you are very very close to having a ASX 100 index fund. All for the price of small brokerage upfront and occasional reweighting if you so choose.



Why not just buy STW?


----------



## Gordon Gekko (10 November 2009)

gooner said:


> If you were paying 4% upfront and 1.75% ongoing for an index fund then you were being seriously done over. Given the weighting of the top 20 companies in the various indexes, all you have to do is buy the top 20 shares according to weighting and you are very very close to having a ASX 100 index fund. All for the price of small brokerage upfront and occasional reweighting if you so choose.





It wasn't an index fund that's the thing, it was an actively managed fund. after really looking into it I noticed it was nothing more than what you wrote above. So where is the added value in an actively managed fund if the FA could have recommended STW or another index fund.
oh yeah the extra money they receive.

Not all FA are bad people.
But they need to run on a model which is different to selling insurance. IE: Sell as much as you can and who gives a **** about anything, just sell sell sell.


G


----------



## brty (10 November 2009)

Skyquake,



> That 80% accuracy is curve fitted and only works in specific time periods...
> Or it averages down so it doesn't "lose" as often.




Umm.... I have great regard for your posts in this forum and always look forward to reading your comments, but I'm afraid the above one is totally wrong.

 Taltan...



> This is my point no-one has that level of certainty




....because you have not worked out how to do something does not mean it is not possible.

prawn...



> brty and Mr J's comments are to do with systems that have 80% accuracy, in hindsight.



    ......correct



> Just because it has performed like that in the past, does not mean it will if market conditions change.




What makes people think that something has not been tested/traded in different market conditions??


brty


----------



## prawn_86 (10 November 2009)

brty said:


> What makes people think that something has not been tested/traded in different market conditions??




Ok perhaps i should have said *may* not perform in different conditions.


----------



## skyQuake (10 November 2009)

OK read through it again; initially read it out of context and thought the 80% accuracy system was one for sale lol.

----------

Also with regards to those backtested systems, people often forget slippage. Not just the bid/ask spread but volume. If you're doing enough size you WILL move markets. Volume through the day may be good but POINT volume can be quite disappointing.


----------



## brty (10 November 2009)

SkyQuake,



> OK read through it again; initially read it out of context and thought the 80% accuracy system was one for sale lol.




Anyone would be mad to sell such a system, you only sell systems that don't really work.  
In regards to testing, I only use the pen and paper method based on observation from past data, yet forward test on bid/ask volume from live data. I deliberately use/look for gameplays that are not programmable.  

Here is a conundrum to consider for those who don't believe that very successful systems (80%+ winners) exist. If 90-95% of all traders lose money, yet nearly all traders (my observation),  use computer derived approaches, then where do the computers figure in trading?? Where do those who don't use computer generated programs/signals fit in to the scheme of things (using TA not FA). 

brty


----------



## gooner (10 November 2009)

alphaman said:


> Why not just buy STW?




1. Fees, though could not find out what they are on a quick look - i.e the costs that are internal to the ETF. Audit, transaction costs, listing fees, balancing costs, profit for state street etc

2. Control over post tax outcomes


----------



## cutz (10 November 2009)

gooner said:


> 1. Fees, though could not find out what they are on a quick look - i.e the costs that are internal to the ETF. Audit, transaction costs, listing fees, balancing costs, profit for state street etc
> 
> 2. Control over post tax outcomes




0.286% ,  http://www.spdr.com.au/etf/fund/fund_detail_STW.html  found on the bottom left hand side.


----------



## Wysiwyg (10 November 2009)

brty said:


> Here is a conundrum to consider for those who don't believe that very successful systems (80%+ winners) exist. If 90-95% of all traders lose money, yet nearly all traders (my observation),  use computer derived approaches, then where do the computers figure in trading?? Where do those who don't use computer generated programs/signals fit in to the scheme of things (using TA not FA).
> brty



Here is one strategy that made 92.59% winning trades and 7.41% losing trades. Simply brilliant hey.


----------



## Julia (10 November 2009)

Temjin said:


> I would like to correct this on my experiences in the events leading to the GFC and the aftermaths.
> 
> While I'm not defending those financial planners, I think it is inappropriate to lay the blame on them for failing to predict the GFC and did not advise their clients to cash out just before the market crash. This is despite to the number of "warnings" out there.
> 
> The signs may have been obvious to those who have been "listening" to the right sources, but certainly not if most financial planners, or even the general public, have been listening to the mainstream news.



So you don't think financial planners/advisers should have been actively following all the financial news?   I can't believe you'd seriously suggest that.
Fair enough that most average investors would not be seriously following daily events (though I find even that strange if they had money involved), but I'd have thought it a fundamental part of the job description of anyone involved in advising clients re financial matters that they be completely up with whatever is happening.



> The potential crash was actively made understated prior to the events. This is clearly evident, the subprime crash would not affect global markets, blah blah blah, etc.  Mainstream news were largely biased in being extremely optimistic about the future (and still is!) and to most people, they would have never foresee the crash with any certainty.



That's quite true, and constitutes my original objection to the published views of financial advisers and economists quoted in the mainstream media.
As far as I can recall, without exception they assured people it would all be just hunky dory.




> Exceptions of course, if their financial advisors were the only few economists/bloggers, who predicted the crisis and actually did GAVE FIRM ADVISE to get out on a particular date or else.
> 
> However, very few financial planners would have the ability to take heed to those advises (let along actually FIND THEM) and then actually advise their clients to take actions.



Well, if that's the case, then imo they shouldn't be in the job of advising others.



> My opinion is that it's quite unfair to blame them for their incompetence with the amount of misinformation and massive amount of media biases out there.



I disagree.



> This along with all other corporate requirement of selling approved product lists, maintaining sales target, etc, etc, would have certainly hinder them from making such good advises.



(Try 'advice' )
Now we are probably getting closer to the reality of the situation at last.
I don't know the current, um, 'guidelines' under which most financial advisers are required to work by their head offices, but I can pretty well guess.
Let's just say your comment here pretty much reinforces my original suggestion that motivation of some FA's is not necessarily firstly the financial wellbeing of all their clients.
(With sincere apologies to those to whom this absolutely does not apply.)



> At the end, it may have been obvious to some of us, but it certainly wasn't to a lot of people including ultra rich investors / high profile economists. Some of them never saw it coming. How do you expect a common financial adviser to do the same?



I've previously suggested that economists - many of whom were fulsome in their pronouncements that there wasn't going to be much of a problem - are not necessarily qualified to comment advisedly on share markets.  That is not their brief.  Ditto accountants, who should mainly stick to advising their clients about tax and related matters.

I've already answered your question "how do you expect a common financial adviser to do the same?".  If many of us ordinary retail investors, simply by following the daily financial news, were able to think it pretty damn likely that things were going to be very unpleasant indeed, I simply can't believe that someone whose job it is to be aware of the financial climate in detail and advise their clients accordingly, should not be able to do the same.



> As I said previously, no one could have, with absolutely certainly, predicted the timing of the crash, or the recovery, and the magnitude of it.



No, that's quite right.  No one can pick what a market will do in a day's time, let alone in the next couple of years.  But you can make a reasonable prediction, erring on the side of protecting capital if approaching retirement, if you simply objectively consider how global markets were falling along with all the economic bad news which continued to come every day.



> It's certainly not the role of a financial adviser to make such predictions.



I disagree.



> They certainly wouldn't do it either even if they have been sourcing from the right information. Fear of litigations if their predictions were not correct would have deter more advisers from making such predictions.



OK, that might be right.  I have no idea.  But why wouldn't they be equally at risk of litigation for failing to appropriately advise, as has clearly been the case in many instances?



> That I agree, and my understanding of what financial advisers do is that they generally recommend asset allocation for retirees to be in the income area and less in capital speculations. Preservation of capital and focus on income.



But, for heaven's sake, that is my point.  They failed to look to preservation of capital.  You are contradicting yourself.



> Of course, human greed bypass that. The clients could easily override their advisers' decisions,



OK, fine, but then the onus would have been on the client, and the adviser would have done his/her job.



> and corporate need to sell financial products (growth funds) also affects it.



Ah, once again, we actually get to the reality of what is the motivation.
Thank you indeed for that final observation.


----------



## Julia (10 November 2009)

Krusty the Klown said:


> I've noticed that financial planners cop a pasting on this site, but never any mention of "stock brokers" copping any flak.
> 
> Or are they just included in the "financial adviser" catch all?
> 
> ...



That's a really good point.
When I first took an interest in the stockmarket, I felt completely ignorant so went to a full service broker.  As I've previously said on this forum, out of the twelve recommendations from them which I accepted, ten lost me significant amounts of money at the end of a year.  This was in a bull market.
That was when I decided I could do better myself.
It's my belief that many stockbrokers advising retail clients are influenced by the same corporate dictates that Temjin has referred to above re financial advisers.  And that the results for the retail small clients can be considered 'collateral damage' when it comes to satisfying the requirements of big clients.




rbourne1 said:


> Thanks Julia for your detailed response. Yes, I make it too obvious that I'm a fa but I agree with many of your concerns.
> 
> Hindsight is a wonderful thing and cashing out for the GFC makes sense after the event. You infer from your comments that many informed investors (not using a fa) would have used this strategy. I wonder how many did. It would make a good comparison.
> Let me ask you a question to perhaps put the issue into more perspective.
> ...



Without looking up charts which I honestly can't be bothered doing right now, I couldn't give you a distinct point in the index.
I sold almost all my p/f at the beginning of January 08, just holding onto a few which were still strongly trending upwards.

It's not possible for me to say what I would have done in any general sense if I were an adviser because obviously each individual situation would vary in terms of client risk profile, asset base, whether there was in addition a substantial amount already in cash etc.   I would, however, have fully discussed the risks of holding on and also of the possibility that by selling to protect capital, there is always the risk of the downturn being less serious than I'd anticipated, and thus incurring of CGT. Then I'd give the client the choice. 

What I'm basically on about is that as far as I can tell, few clients were given this advised option, with the risks and benefits pointed out, so that they could make an informed choice.



> You are right in that the media was not short in providing all types of warnings and news about the events (sub-prime) leading to the GFC but I'd be interested in knowing if there was any particular news item or movement in the market which would have persuaded you to make the call to 'cash out'



No, definitely not.  It was just the accumulated reports from the sub-prime on.  I think I became more and more concerned as I realised the extent of the CDO's and CDS's out there when no one seemed to actually how many they were and what their potential eventual cost might be.  Just the very number of 'unknowns' I think made me very nervous.



> And assuming you did cash out, would you still be sitting in cash now or would you have entered back into the market at some stage?  Again, You infer that you would be back in the market but I'd be interested in the reasons (I'm always learning!)[/QUOTE
> I began moving back in March this year when the market began to move up, just tentatively at first, and then committed to more in June, and I have just bought more again in the last week or so.  Still have a fair bit in cash because I'm not convinced we are fully on the road to recovery.
> 
> I'm quite happy to forego some profits at the bottom and the top for the sake of my own peace of mind.  Can easily live on the interest from the cash deposits.
> ...






Kremmen said:


> Only in hindsight and only if you knew how deep the slump would be.
> 
> If the slump had been less and the rebound had been sooner, people who cashed out could have simply been left worse off than they started, because of massive capital gains tax bills. ... And then they'd have been abusing their financial advisor for wrecking their investments!






rbourne1 said:


> That's a good point Kremmen. There are also those clients (I had some) who voluntarily cashed out near the bottom (3500) and are still sitting in cash. Who knows, maybe the market will fall below 2000 so they can justify their decision.



Yes, that's always the risk you take.  Obviously you can never be certain you're right, but you can consider all the available information and take a course of relative safety.  It's always possible to buy back in.
Silly to sell out at or near the bottom.  After a certain point, better to hang in there.


----------



## Julia (11 November 2009)

Apologies for the odd formatting above.  Originally did the two posts all in one but it was too long to go through so I had to do a copy and paste, and that's how it turned out.  Hope it's still understandable.


----------



## Krusty the Klown (11 November 2009)

Julia said:


> That's a really good point.
> When I first took an interest in the stockmarket, I felt completely ignorant so went to a full service broker.  As I've previously said on this forum, out of the twelve recommendations from them which I accepted, ten lost me significant amounts of money at the end of a year.  This was in a bull market.
> That was when I decided I could do better myself.
> It's my belief that many stockbrokers advising retail clients are influenced by the same corporate dictates that Temjin has referred to above re financial advisers.  And that the results for the retail small clients can be considered 'collateral damage' when it comes to satisfying the requirements of big clients.




Remember stock broking firms handle IPO's so the stocks they "recommend" to their clients can be the floats they have underwritten. 

Not necessarily the right investment for the client's risk profile, but an investment that they are being *paid to sell *by the company floating or raising capital.


----------



## Judd (11 November 2009)

Krusty the Klown said:


> Remember stock broking firms handle IPO's so the stocks they "recommend" to their clients can be the floats they have underwritten.
> 
> Not necessarily the right investment for the client's risk profile, but an investment that they are being *paid to sell *by the company floating or raising capital.




Or one that is on the "recommended" list from their research department.  Fell for that once but fortunately we got a five figure sum back as compensation when we complained.


----------



## rbourne1 (11 November 2009)

I think its safe to conclude that investors who are properly informed and take the time to educate themselves are more likely to take control of their own finances as you have Julia and that's a good thing. The failings of many financial advisers is their inability or lack of desire to educate or inform investors in the fear of losing them as a client.


----------



## Krusty the Klown (11 November 2009)

Judd said:


> Or one that is on the "recommended" list from their research department.  Fell for that once but fortunately we got a five figure sum back as compensation when we complained.




What happened exactly Judd?

No names necessary.


----------



## rbourne1 (11 November 2009)

And if you think Financial Advisers are biased and focused only on themselves, consider how stockbrokers make money. Their only income is brokerage, and to earn brokerage they need turnover of stocks. Always be wary of stockbroker recommendations including IPO's. 
The movie 'Wall Street' is a good example of how greed and stock manipulation are a real concern with 'real life' brokers.


----------



## Julia (11 November 2009)

Krusty the Klown said:


> Remember stock broking firms handle IPO's so the stocks they "recommend" to their clients can be the floats they have underwritten.
> 
> Not necessarily the right investment for the client's risk profile, but an investment that they are being *paid to sell *by the company floating or raising capital.



Exactly, Krusty.  This is what I alluded to earlier.  i.e. that the small retail investor can very easily become 'collateral damage' in the greater objective of keeping the big client happy.



Judd said:


> Or one that is on the "recommended" list from their research department.  Fell for that once but fortunately we got a five figure sum back as compensation when we complained.



Interesting, Judd.  I'd also be keen to know more about this.

If you think about it, the principle is not so different from the whole Storm modus operandi.


----------



## doctorj (11 November 2009)

Julia said:


> that the small retail investor can very easily become 'collateral damage' in the greater objective of keeping the big client happy.



It's important to understand why the retail investors even get a look in.  More often than not it's a combination of the following - liquidity for a large investor to exit, cost of capital via IPO is lower (ie. they charge retailers a premium) and the prestige of being listed.  As a retailer, its worth going in with the understanding that it's not a level playing field and never will be.


----------



## Julia (11 November 2009)

doctorj, could you clarify whether your post is referring to just IPO's?
And do you actually mean 'retailers' as in companies who sell goods to the public, or 'retail investors'?
Sorry, but I'm just a bit confused by your post.


----------



## doctorj (11 November 2009)

Julia said:


> doctorj, could you clarify whether your post is referring to just IPO's?
> And do you actually mean 'retailers' as in companies who sell goods to the public, or 'retail investors'?
> Sorry, but I'm just a bit confused by your post.



It was written very quickly and very poorly. 

By 'retailers' I was referring to retail investors. The message applies to IPO and post-IPO investment. Basically, retail investors are a cost to any company and there are only very limited reasons for a company to want retail investors at all.


----------



## Judd (12 November 2009)

Judd said:


> Or one that is on the "recommended" list from their research department.  Fell for that once but fortunately we got a five figure sum back as compensation when we complained.






Julia said:


> ....Interesting, Judd.  I'd also be keen to know more about this.....




Nothing really mysterious.  We were trying to get a grip on where to invest some funds, obviously stating that we are of the cautious kind and no specs please, the broker recommended a company Q-vis.  If you wish to know about the company have a look at delisted.com.au.

Found out that one arm of the broking firm had an interest in the company and some of the front office brokers were encouraged to flog it to muppets such as us.  Grrrrrr.

Complained to head office of broking firm that it did not met our requirements as conservative investors, blah, blah for two pages so add an additional blah.

End result was, with the usual argy bargy, we reached agreement on the compensation amount.  Took a few months but it was all very civilised.


----------



## condog (12 November 2009)

brty said:


> SkyQuake,
> Anyone would be mad to sell such a system, you only sell systems that don't really work.
> brty




Whilst I have extreme doubts about most marketed trading systems , there are tried and proven technical skills that often work with probable outcomes.....Most this info is  available free 

In terms of selling only systems that dont work......Surely thats not true......

The premise of any successful business is to satisfy customers more and more for longer and longer and have them buy more and more from you, plus thier friends etc etc...(crude definition only)

Id be more inclined to say *most *trading systems ive seen apply proven trading systems to predominately dreadful ( thus volatile) stocks....
Due to this they tend to work well in sideways and climbing markets and then burn people very badly when GFC, Twin tower type events aris.


----------



## Dona Ferentes (15 November 2020)

Smartphone trading by mum and dad investors has surged to record levels during the pandemic-induced recession in what has become a _*"groundbreaking year for home traders"*_. Banks report online share market trading volumes have tripled and the value of trades has also increased, with renewed optimism driven by the potential of a coronavirus vaccine.

*Westpac*'s head of investment products Rodney Greenhalgh said there had been a "dramatic spike" in trading volumes, new account applications and customer contacts. New account openings were up by about 330 per cent over the March quarter. This has slowed since but remains up dramatically year-on-year with new accounts up 240 per cent for the six months to September compared to 2019. Trading volumes were also up by more than 200 per cent over the six months to September and the value of these trades increased.

"_We have also experienced a continued increase in the use of mobile devices to place trades_," Mr Greenhalgh said, with about a third of all trades taking place on smartphones and tablets compared to a quarter last year....

*NAB*'s director of investor behaviour for trading service nabtrade Gemma Dale said it had been a "ground breaking year for home traders" with levels of trading at more than double the average rates during some of the top days this year.

"_[This has] been driven by the cut in interest rates, promising vaccine news and the riveting US election_," Ms Dale said.

The Commonwealth Bank revealed in its annual results that share trading service* CommSec,* the largest online stockbroking firm in Australia, has seen record retail investor activity with 400,000 new accounts and 400,000 new smartphone application downloads during the year. CommSec launched micro-investing app CommSec Pocket in July 2019 and has since added an extra 100,000 customers to the service, with $177 million invested since the launch. The overwhelming majority of investors on this service are under 40.

CommSec chief economist Craig James said business conditions and confidence were improving, with consumers much more positive despite a record number of new COVID cases in the US and Europe. The US sharemarket is also rising, up 4.1 per cent last week.

Micro-investing exchange traded funds app *Raiz *chief executive George Lucas said there had been a rapid increase in average account balances on the service "especially in more conservative strategies". "_The conservative portfolio average balances have been increasing the most - this could be because of the uncertainty in the world at the moment or a hunt for higher yields that can be achieved at a bank,_" Mr Lucas said. "_There is no doubt ... there is high awareness around the very low level of interest you are getting on your bank account while at the same time a massive increase in market talk_".

http://www.smh.com.au/federal-politics/political-news/dramatic-spike-in-smartphone-trading-among-mum-and-dad-investors-20201114-p56elc.html?btis


----------



## Dona Ferentes (15 November 2020)

and the other side of this, that individuals want to take control of outcomes.....  a lot of money is parked, combined, risk managed in :::: Superannuation :::: and is doing quite poorly, probably because of the various funds' inherent size and inertia (and the unstated reality of not wanting to underperform, _shock horror_ _leakage_, so little risk is taken to capture the upside)



> .... look at your investment portfolio or super returns for the last 12 months you will be doing well to have advanced or rebounded at all. Our best guide to overall investment returns is the progress of* super fund balanced *options, as that’s where most people have most of their money. So, how are they doing? Well, according to SuperRatings, the returns for the median balanced option over the past 12 months is minus 0.8 per cent. For the year to date (to the end of October) it is worse at -2.5 per cent.  ...
> 
> Let’s just take a moment to look at the past. The accumulation returns on the median balanced super fund on a 10-year basis is 7.3 per cent — very nice. On a seven-year basis it’s 6.6 per cent: not bad either. On a five-year basis it’s 6 per cent. On a three-year basis it is 4.7 per cent. You get the picture.







__





						NoCookies | The Australian
					






					www.theaustralian.com.au


----------

