We humans are as creative on the "Dark Side" of commercial activity as we are in the development of beneficial new products and services. Given the enormous financial advantages, but some managers can not resist taking an extra dessert even before their shareholders have finished eating. Some scandals have stifled a greater impact on investors than others, and most products unwarranted levels of state regulation and control, the honest creativity.
Plain vanilla fraud andTheft are less worrisome to me than situations where the general acceptance of misinformation or "business as usual" practices inherently bad product ideas and blatant mismanagement is allowed by regulators to be accepted financial professionals, and myopically gullible consumers. Here are some candidates for future "Blockbuster Scandal Awards" (BS Awards, if you will): Variable Life Insurance & Annuities, Wrap Fee Managed Investment Accounts, Portfolio Window Dressing, AssetAllocation Mutual Funds, and Obscene Executive Compensation.
1) Insurance and Variable Annuities: Variable products are a relatively new thing in the insurance industry, circa 1980 or so. Previously called the conventional wisdom of the Shock Market much too risky for the guaranteed life insurance and annuity contract benefits. In fact, these benefits were "guaranteed" for so long that there is a general expectation of any on the market either for itself. So, whyState Insurance Departments in the cavity of variable size lobby? And what is not, since these products are marketed to potential stresses policyholders and pensioners?
As if the 8% sales commission on Straight were not enough life annuities, the addition of Mutual Fund Variable Annuity irresistible bonuses ... financial professionals. Similarly, this product is so lucrative for the companies that they manipulate their prices in order to become more competitive. Since theIntroduction of variable benefits, we have been more insurance company errors and scandals, and not just a few disappointed recipients of reduced pension payments. What is your plan to retire?
2) Wrap Fee Investment Accounts: From the beginnings of wealth, the very wealthy employed Investment Managers to protect and grow their portfolios. Most Investment Managers had only a few large customers that they tend to, while the rest of the fledging financial industry focused onProperty and real estate creation through life insurance. Most of today's (paid) Investment Managers are employed by Financial Institutions to supervise thousands of Mutual Funds for millions of investors of all financial shapes and sizes. There are more equity mutual funds than individual stocks on the New York Stock Exchange. Most investors today will employ many Investment Managers and never actually speak allthem.
Enter the personally managed investment portfolio product of most major financial institutions offer. For a one-time fee, you get the personal service of a professional investment manager, and a portfolio specifically designed for you. Except, of course, that you are neither. You will receive exactly the same range as any other, and regardless of the price ... at once a fund with individual statements. But of course you can speak to the manager whenever youwant to change your asset allocation, set a reserve for an upcoming expenditure, etc. Yeah, sure, you can!
Note that "Flat Fee" managed accounts are very different and can even lead individually and personally.
3) Portfolio Window Dressing: Every quarter, every year we hear about the adjustments to make the portfolio managers as they look smart to try their largest customers. Now in a discipline (Investing) that they all officially recognize as a long termCommitment to a specific strategy or plan, why the Masters of the Universe spend so much time manipulating their short-term performance numbers? And why is it business as usual "instead of common fraud?
4) Asset Allocation Mutual Funds: Asset Allocation I see seem a little differently than most professionals and to regulate me and check that the portfolio structure that is the cost basis of securities rather than their market value. But how, logically, can aOne-size-fits-all Mutual Fund be the right mix for all investors? Here is a definition, which is on the Internet: "A fund, which in turn maximizing the stocks, bonds and money market securities return on investment and minimize risk." And a definition of Asset Allocation from a similar source: "The practice of distributing a certain percentage of a portfolio between different types of assets such as stocks, bonds, mutual funds, cash, real estate,Options, etc. By diversifying an individual asset basis, we hope to create a favorable risk / reward ratio for a portfolio. "
In reality, Asset Allocation is a structure-planning tool, which is determined by what percentage of your investment portfolio is invested in economic growth in stocks and what percentage is to be invested for income production. The correct assignment is a function of the investor's age, marital status, financial status, employment status, retirement,Expenditure needs, risk tolerance, family responsibilities, etc. Diversification occurs within two (only two) asset classes. One size fits all ... Who's kidding whom?
5) Corporate Executive Compensation: I strongly believe that everyone has the right to become filthy rich, legally of course. I respect anyone who gets there honestly because their job success, opportunities, wealth creation and improved living standards for all. But once they sell their shares to the successfulCompanies to the public, they have a responsibility to share future profits and growth. Obscene executive suite compensation (up to the sedan) with a driver is simply stealing from shareholders.
Maintaining With each new scandal, a voracious media and a hypocritical Congress to strengthen the fear of investors shaken and call for greater regulation of the very organizations whose success, freedom, viability and competitiveness they should. Ironically, politicians are always theoutspoken critic ... probably because of their familiarity with the cover-ups and other irregularities. But no one ever questions the integrity of the financial institutions that invented to produce, price, and promotion of products and services that do much more to make long-term damage than the few (albeit serious and sensational) cases of false companies.
Four of the five nominees for this year's Blockbuster Scandal (BS) Award were created on Wall Street. The fifth is ignored by her. What bothersYou most?
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