Saturday, November 22, 2014

The Folklore of Finance : How Beliefs and behaviors Sabotage Success in the Investment Management Industry

In  “The folklore of finance: Beliefs that contribute to investors’ failure” Paul Sullivan discusses a new study The Folklore of Finance : How Beliefs and behaviors Sabotage Success in the Investment Management Industry  indicating that “the way individual and professional investors made investment decisions was so skewed that achieving both high returns and long-term objectives was nearly impossible”. What the study found is that due to “’the folklore of finance’…people were overconfident in their investing ability, unable to focus on their stated long-term goals when distracted by short-term noise in the markets, and had come to distrust their advisers and lose interest in receiving professional investing help.”  The study also found that the prognosis is poor for changes to investor current behavior exemplified by: “futile quest for alpha”, short-term orientation instead of focus on “setting a financial goal and meeting it”. If your advisor is not calling you regularly to discuss how you are doing against your long term goals, perhaps you should be looking for a new advisor. Thanks to Peter benedek at

http://retirementaction.com/2014/11/21/hot-off-the-web-november-24-2014/  The Full Study is available at http://www.statestreet.com/centerforappliedresearch/doc/folklore/paper.pdf In effect, the financial services industry faces a crisis of faith that may lead to more Do it Yourselfers that can be counter to investors' long term interests.The financial services industry needs to develop a new Folklore of Finance that reinforces the values to achieve true success beyond the profitability of industry participants.

Saturday, November 8, 2014

There's disclosure and then there's mal-disclosure

Disclosure is intended to foster robust communication and understanding between the dealer representative and the investor.It permits an understanding of the risks, fees and suitability of an advisor recommendation so an informed investment decision can be made . Emailing a copy of Fund Facts is technically a disclosure under a transaction business model but providing complex documents to retail investors without engaging them is not disclosure in a client -advisor relationship model.Sending it AFTER the purchase decision has been made adds to the nonsense. But even if an effective mandated disclosure regime is implemented ,dealer Reps have a variety of techniques to subvert disclosure should they wish to do so.Unfortunately , some do. This article sheds some light on the murky world of  investor mal-disclosure processes . Read the article   Be AWARE.

Outside Business Activities can Impair your Financial Health

This article explains why working side deals with your advisor may not be the smartest move. Lots of potential bear traps. Read the article here 

Friday, November 7, 2014

Complaint handling from Seniors in need of major reform

Complaint investigators have not tailored their protocols to match the unique challenge of complaints from the elderly. Most haven't made the cultural shift to comply with CRM and IIAC's list of Best practices in dealing with seniors. The mindset change from a transaction business to an advice business is not encapsulated into operations or complaint investigation methodologies /assessments. Complaint investigators need to realize that the risks clients face saving for retirement are different than the risks they face during retirement. Building a plan to distribute a nest egg in a manner that mitigates the unique risks the client will face during the retirement years is absolutely necessary yet most complaint investigators do not consider this in complaints received from seniors and retirees  Dealing fairly, honestly and in good faith with clients includes the handling of complaints. Further, a number of civil cases have demonstrated that new standards of care are expected within Canadian society and complaint investigations should take them into account.

Once Securities Commissions and the MFDA/IIROC  improve their processes it can be a example for investment dealers to follow. This article describes the practices and behaviours that need to be changed. Read it here 

Tuesday, November 4, 2014

The Great KYC Deception....a relationship not in your favour

Kenmar Associates                    Financial Literacy Month                                        November , 2014

Investment KYC Deception, investors deceived, "set-up" from the account opening..a relationship not in their favour

Here's our contribution for this year's Financial Literacy Month. How millions of investors, Canadian and American are deceived, and "set-up" from the very account opening into a relationship which might not be in their favour. Unlike industry participants and their lobbyists, we concentrate on Investor Protection via Streetproofing-making retail investors street savvy.

The KYC (Know You Client/Customer Application Form) is designed and completed in a manner to be used against your investment interests by salespeople and dealers, and used against you a second time if and when you complain against them.

It is one of your first acts when you visit investment sellers, and this video by seasoned investor advocate Larry Elford ,shows how the dealer is years and years ahead of your experience in the matter, and how they take advantage of this to set the stage…..for themselves. Not every broker/dealer does this of course, but the percentage is in the majority, so your odds of going through the process described in the video are quite high.Enjoy the Video.

Investment KYC Deception   Click here 

Keep in mind that even if you have the MOST TRUSTWORTHY man or woman on your side, the dealer who sponsors their sales license should be approached from a Caveat Emptor perspective.Until a Best interests regime is implemented , that's the safest approach.


Stay tuned for more Streetproofing educational materials.

Rules of Prudence for Individual Investors

Rules of Prudence for individual investors
A plain English set of  common sense rules that could save you a lot of money and anguish. 

Saturday, November 1, 2014

Mandatory and Voluntary Disclosure Leads Advisors to Avoid Conflicts of Interest


Abstract Professionals face conflicts of interest when they have a personal interest in giving biased advice. Mandatory disclosure—informing consumers of the conflict—is a widely adopted strategy in numerous professions, such as medicine, finance, and accounting. Prior research has shown, however, that such disclosures have little impact on consumer behavior, and can backfire by leading advisors to give even more biased advice. We present results from three experiments with real monetary stakes. These results show that, although disclosure has generally been found to be ineffective for dealing with unavoidable conflicts of interest, it can be beneficial when providers have the ability to avoid conflicts. Mandatory and voluntary disclosure can deter advisors from accepting conflicts of interest so that they have nothing to disclose except the absence of conflicts. We propose that people are averse to being viewed as biased, and that policies designed to activate reputational and ethical concerns will motivate advisors to avoid conflicts of interest. To read the full Paper click here