Can Socially Responsible Investing reduce portfolio risk?

Responsible Investing (RI) aka Socially Responsible Investing (SRI) incorporates environmental, social and corporate governance criteria into the selection of investments.For some, these constraints mean that  portfolio construction is limited, opportunities lost and risk increased.But a May , 2015 study suggests that RI provides a number of potential advantages including strong financial returns,reduced risk , and more downside protection than traditional mutual fund incvestments.RI mutual funds and venture capital funds now total $17.5 billion . The paper  Canadian Responsible Investment mutual funds : Risk?Return Characteristics Study Findings  can be read here  It should be noted that not everyone agrees with the screening criteria. For example, those who survived the horrors of WWII do not necesarrily agree that investments in weapons manufaxturers like Lockheed Martin are necessarily undesirable. To them , it means the ability to defend our democracy and freedom .

Ethics and trust in financial Services: John Bogle

JOHN BOGLE SPEECH AT GEORGETOWN LAW - Nov 05, 2014
John  delivered a keynote speech before the Public-Private Partnership Symposium at Georgetown University School of Law on October 31, 2014. Titled “Values, Ethics, and Structure in Finance,” the speech discusses the importance of getting the right structure of business model and incentives in order to have a financial system that serves the needs of clients first. “Values, Ethics, and Structure in Finance,” October 31, 2014, Georgetown University School of Law .

Research on Advisor Fiduciary duty

• Ditching the Securities Blanket - Revisiting the Financial Advisor-Client Fiduciary Obligation in Canadian Law by Mark Donald  The author's conclusion : " While obviously well-intentioned, many supporters of a blanket statutory fiduciary/best interest standard apparently view this equitable legal construct as a sort of panacea. This position ignores the significant practical legal perils that such a statutory creation would create, and puts investor advocates on an unhelpful, and arguably unavoidable collision course with IAs and the securities defence bar.The better way forward would be for all parties to consider the power of targeted, systemic regulatory changes to the financial services industry, and accept that wholesale revolution to the client-advisor relationship is not a precondition to developing a fairer and more efficient financial services industry. Such an approach could have profound, positive results, while avoiding the theoretical debates that make a fiduciary/best interest solution so elusive.".  Read it here 

Fed up with bank fees and bank exploitation?

If the latest round of bank fee increases finally got you upset enough to take action , read this article.
Some apathetic folks are simply taking the approach " If you can't beat em, buy em" and are investing in bank stocks. Over the years the fees they collect from the docile can mean real gains and dividends for shareholders. In any event, there's a feel good emotion thaat some of the client gouging is coming back to you.

Case study : The reality of Investor Protection in Canada

This case will open your eyes . The sad reality is when you invest you have to be constantly on guard. There are many forces working against you and too few forces working to protect you from Bay Street shenanigans. Be aware that your “ advisor” is not required to act in your Best interests .

He/she may also be motivated by sales commissions to actually place you and your retirement  in harm’s way.  CAVEAT EMPTOR prevails in Canada’s “ Wealth Management industry “, an industry creating wealth but not necessarily for you.

Equity Crowdfunding poses significant risks for main Street

Equity Crowdfunding is coming whether we like it or not - you need to be ready.Companies raising capital on regulated, public stock markets must jump through all sorts of disclosure hoops intended to protect the public from fraud. When they raise capital in private markets, often for early-stage companies, they may generally tap only "accredited" investors--those who can prove they are wealthy and sophisticated enough to participate in what are inherently risky ventures.

What if you could remove both constraints, allowing issuers to offer securities to the general public without the rigorous disclosures required when "going public"? That's Equity Crowdfunding .

Read more here

Brokers get a mixed review on how they treat older investors: SEC- FINRA Report

One of the primary missions of the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) is the protection of investors, of which senior investors are an important and growing subset. As part of a collaborative effort, staff of the SEC’s Office of Compliance Inspections and Examinations (“OCIE”)1 and FINRA (collectively, the “staff”) conducted 44 examinations of broker-dealers in 2013 that focused on how firms conduct business with senior investors as they prepare for and enter into retirement. These examinations focused on investors aged 65 years old or older; this report refers to these investors as “senior investors.”

The results suggest more has to be done.“..More than a third of brokerage firms examined by regulators made one or more potentially unsuitable recommendations of variable annuities to senior investors, a report issued Wednesday found.The greatest issue regarding these sales was whether it was appropriate to exchange variable annuity contracts in light of the fees incurred, according to the report on the treatment of senior investors by the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc.(FINRA), the self-regulator of brokers. Firms generated the most revenue from seniors by selling open-end mutual funds, variable annuities, equities, fixed-income investments, unit investment trusts and exchange-traded funds, nontraded real estate investment trusts, alternative investments and structured products, in that order..”.

This report highlights recent industry trends that have impacted the investment landscape and discusses the key observations and practices identified during the recent series of examinations with regard to securities sold to senior investors, training, use of senior designations, marketing and communications, account documentation, suitability, disclosures, customer complaints, and supervision. OCIE and FINRA staff are providing this information to broker-dealers to support their thoughtful analysis of their policies and procedures as they serve the needs of senior investors.

OCIE and FINRA staff are concerned that broker-dealers may be recommending unsuitable securities to senior investors or failing to adequately disclose the related risks. It is imperative that senior investors receive proper and understandable disclosures regarding the terms and risks related to securities recommended to them, particularly non-traditional investments.

The 41 page Report National Senior Investor Initiative is available at http://www.sec.gov/ocie/reportspubs/sec-finra-national-senior-investor-initiative-report.pdf

Stock buybacks: From retain-and reinvest to downsize-and-distribute By William Lazonick

Stock buybacks are an important explanation for both the concentration of income among the richest households and the disappearance of middle-class employment opportunities in the United States over the past three decades,” says University of Massachussetts at Lowell economics professor William Lazonick in a new paper published by the Brookings Institution. “Over this period, corporate resource-allocation at many, if not most, major U.S. business corporations has transitioned from “retain-and-reinvest” to “downsize and distribute model.

 It is unlikely that the transformation of the U.S. business corporation from downsize-and-distribute to retain-andreinvest can occur without the leadership of the more visionary of current corporate board members, CEOs among them. In 2001, Jack Welch, upon his retirement as CEO of General Electric, published a book, Jack: Straight from the Gut, about his experience as a business leader.85 But it took Dr. Welch another eight years and a financial crisis to get his gut to speak to the absurdity of the ideology of maximizing shareholder value. In March 2009 Welch told a Financial Times reporter: “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy…Your main constituencies are your employees, your customers and your products.” Perhaps the interviewer had a shocked look because Welch saw fit to reiterate: “It is a dumb idea. The idea that shareholder value is a strategy is insane. It is the product of your combined efforts – from the management to the employees.”86 Any business executive, business school professor, or business consultant who understands what it is that makes an enterprise innovative should know that, in this case at least, Jack Welch was right. Read this thought provoking article at
http://www.brookings.edu/~/media/research/files/papers/2015/04/17-stock-buybacks-lazonick/lazonick.pdf

 

Check your brokerage service and maintenance fees

NASAA research shows investor confusion over fees| . A new advisory from the North American Securities Administrators Association (NASAA) aims to help raise investor awareness about fees charged by broker-dealer firms for account services and maintenance. In the advisory, NASAA suggests investors focus on the timing, method and content of these sorts of fee disclosures. It calls on investors to not place assets with a firm without a current fee schedule, to ensure that they understand those fees, and to pay attention to any changes that firms make to those fees. Additionally, it says that investors should know the services that they could use regularly, and ask specifically about the terminology a firm uses for its services and the associated fees. http://www.nasaa.org/35290/informed-investor-advisory-understanding-broker-dealer-fees/ Full Report Are you an informed investor? Understanding Broker-Dealer Fees available at   http://www.nasaa.org/wp-content/uploads/2015/04/BD-Fee-Advisory.pdf Fees impact returns- make sure you know what fees you are paying and that you receive the services associated with the fees.Don't hesitate to ask about seniors rebates, asset-based discounts etc. -It's your money.

“Risk Literacy”

 Using domestic and international data, Director Annamaria Lusardi finds that knowledge of financial risk is strikingly low both in the population and across a variety of demographics. Across countries and age groups, individuals show little mastery of concepts such as risk diversification and the relationship between risk and return. Indeed, in financial literacy surveys assessing knowledge of interest compounding, inflation, and risk, respondents consistently performed worst on the risk-related question. Knowledge of risk is critical to making decisions about saving and retirement planning. These findings have implications for individuals, policy makers, and the financial and insurance industry. While individuals are facing increasingly complex financial and insurance instruments, their low risk literacy may limit their ability to use these instruments on a micro level, and—on a macro level—impede the development of wellfunctioning financial markets. Read the full paper here