Why are so many investors unhappy with their advisors? Because they got what they deserved:
Investors would rather pay commissions for the financial advice they receive than a fee based on assets under management, said Cerulli Associates.
About 47 percent of 7,800 households surveyed prefer paying commissions, compared with 27 percent that would rather contribute a fee based on assets, according to the report released today by the Boston-based research firm. About 18 percent said they prefer paying retainer fees, which are generally lump sums negotiated between advisers and clients, and 8 percent said they opt for an hourly fee structure.
…
About 33 percent of investors surveyed said they didn’t know how they pay for the investment advice they receive, and 31 percent said they thought their adviser or broker provided investment advice for free. Those who were unsure of how they pay for advice were most likely to be unhappy with their financial adviser, with 47 percent reporting dissatisfaction, the study said. About 27 percent of those who said they pay commissions reported being dissatisfied.
…
About 64 percent of those surveyed said they believe their financial adviser is held to a fiduciary standard of care, and 63 percent of clients of the largest broker-dealers said they thought that as well.Brokers currently must meet a standard to offer clients “suitable investments,” whereas registered investment advisers have a fiduciary obligation to put clients’ best interests first.
In January, the U.S. Securities and Exchange Commission released a report recommending a common fiduciary standard for brokers and registered investment advisers who provide personalized investment advice. The SEC is scheduled to propose a rule on the standard between August and the end of the year, according to its website. Holding brokers to a fiduciary standard won’t preclude them from accepting commissions, the SEC report said.
Perhaps somebody, somewhere, will somehow explain to me how fiduciary responsibility is compatible with a transaction-based fee structure. But I doubt it.
In trouble over hockey arenas? Try a distraction, like paternalistic, invasive regulation:
The Quebec government, desperate to head off a looming collapse of household finances when interest rates rise, has tabled a bill that would force credit card holders to boost their monthly payments and settle their debts faster.
Among the new rules proposed Wednesday by the Liberal government of Jean Charest, lenders would be required to raise the minimum monthly credit card payment to 5% of the outstanding balance from the current 2%. The measure would be phased in over three years.
The government is worried its citizens will have a hard time paying off what they owe and saving money when interest rates start their inevitable climb.
I don’t pay a lot of attention, but credit card rates aren’t all that sensitive to prime, are they?
There’s another coercive Irish tender:
DBRS Inc. (DBRS) today has downgraded the Dated Subordinated Debt rating of Irish Life & Permanent plc (IL&P or the Group) to “C” from CCC. Today’s downgrade follows the announcement by IL&P that it has commenced an offer to purchase the aforementioned securities for cash and a solicitation of consents in relation to the securities. Moreover, DBRS expects to downgrade the Dated Subordinated Debt to “D” at completion of the buyback; as such, the securities remain Under Review with Negative Implications, where they were placed on 3 December 2010.
In DBRS’s view, the purchase offer, when completed, is tantamount to a default as defined by DBRS policy. DBRS views the proposed purchase offer as coercive as the offer affords bondholders limited options. Should the bondholder reject the proposed offer, at an 80% discount on the majority of the tendered securities, they risk receiving substantially less if the proposed consent amendments are ratified. Remaining bondholders would then receive 0.001% of par value, should the consent to allow the “clean-up” of residual notes be accepted by tendering bondholders.
The FRB-Boston has released a Public Policy Discussion Paper by Christopher L. Foote and Jane S. Little titled Oil and the Macroeconomy in a Changing World: A Conference Summary:
Analysis of oil-price movements is once again an important feature of economic policy discussions. To provide some background for this analysis, this paper summarizes a conference on the oil market held at the Federal Reserve Bank of Boston in June 2010. Four cross-cutting themes emerged from this symposium, which included scientific experts, market participants, business leaders, academics, and policymakers. First, the decline in real oil prices that followed the 1970s’ oil shocks is unlikely to be repeated today, because there are fewer ways in which oil-importing countries can reduce oil demand or expand domestic supplies in response to higher prices. The second lesson of the conference, however, is that any prediction about oil markets is highly uncertain, a fact illustrated by the wide confidence intervals that result when futures-market data are used to quantify forecast uncertainty. Third, there is little consensus on whether new financial investment in commodity index funds has increased the volatility of oil prices. Finally, changes in oil prices still have large effects on the economy. Some research suggests that the rapid run-up in oil prices in 2007–08 may have significantly weakened the U.S. economy in the early stages of the Great Recession.
I don’t expect the third point to get much attention from the politicians and regulators!
The Big Yellow Machine continued to break down:
| YLO Issues, 2011-6-8 | |||||
| Ticker | Quote 6/7 |
Quote 6/8 |
Bid YTW 6/8 |
YTW Scenario 6/8 |
Performance 6/8 (bid/bid) |
| YLO.PR.A | 22.05-30 | 22.30-40 | 12.72% | Soft Maturity 2012-12-30 |
+1.13% |
| YLO.PR.B | 15.77-86 | 16.20-42 | 14.17% | Soft Maturity 2017-06-29 |
+2.73% |
| YLO.PR.C | 17.60-98 | 16.91-08 | 9.84% | Limit Maturity | -3.92% |
| YLO.PR.D | 18.00-20 | 17.07-25 | 9.95% | Limit Maturity | -5.17% |
It was a mixed day on the Canadian preferred share market, with PerpetualDiscounts losing 8bp, FixedResets up 11bp and DeemedRetractibles down 10bp. There was a nice little bit of volatility, mainly to the downsider for the insurer DeemedRetractibles that have done so well lately. Volume continued to be pathetic – all the players must be enjoying the good weather!
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2321 % | 2,478.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2321 % | 3,727.0 |
| Floater | 2.43 % | 2.21 % | 43,018 | 21.70 | 4 | 0.2321 % | 2,675.7 |
| OpRet | 4.86 % | 2.68 % | 67,468 | 0.38 | 9 | -0.1626 % | 2,424.8 |
| SplitShare | 5.24 % | -0.06 % | 60,062 | 0.52 | 6 | -0.1985 % | 2,501.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1626 % | 2,217.2 |
| Perpetual-Premium | 5.65 % | 5.01 % | 153,034 | 1.41 | 12 | -0.1803 % | 2,077.8 |
| Perpetual-Discount | 5.44 % | 5.53 % | 114,588 | 14.53 | 18 | -0.0815 % | 2,183.8 |
| FixedReset | 5.14 % | 3.20 % | 191,309 | 2.82 | 57 | 0.1090 % | 2,317.3 |
| Deemed-Retractible | 5.07 % | 4.88 % | 316,962 | 8.14 | 47 | -0.1038 % | 2,154.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| GWO.PR.I | Deemed-Retractible | -1.71 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.41 Bid-YTW : 5.82 % |
| FTS.PR.F | Perpetual-Discount | -1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-06-08 Maturity Price : 23.68 Evaluated at bid price : 23.92 Bid-YTW : 5.15 % |
| BAM.PR.O | OpRet | -1.14 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 3.48 % |
| SLF.PR.A | Deemed-Retractible | -1.02 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.26 Bid-YTW : 5.62 % |
| PWF.PR.O | Perpetual-Premium | -1.02 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-11-30 Maturity Price : 25.00 Evaluated at bid price : 25.32 Bid-YTW : 5.73 % |
| SLF.PR.B | Deemed-Retractible | -1.01 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.61 Bid-YTW : 5.49 % |
| GWO.PR.J | FixedReset | 1.52 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-30 Maturity Price : 25.00 Evaluated at bid price : 26.75 Bid-YTW : 3.10 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| CM.PR.H | Deemed-Retractible | 61,870 | Called for redemption. YTW SCENARIO Maturity Type : Call Maturity Date : 2011-07-08 Maturity Price : 25.75 Evaluated at bid price : 25.93 Bid-YTW : 2.20 % |
| PWF.PR.P | FixedReset | 57,186 | TD crossed 50,000 at 25.70. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-06-08 Maturity Price : 23.41 Evaluated at bid price : 25.75 Bid-YTW : 3.67 % |
| CM.PR.I | Deemed-Retractible | 56,559 | Desjardins crossed 40,000 at 25.16. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.15 Bid-YTW : 4.70 % |
| HSE.PR.A | FixedReset | 56,547 | RBC crossed 50,000 at 25.60. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-04-30 Maturity Price : 25.00 Evaluated at bid price : 25.63 Bid-YTW : 3.84 % |
| RY.PR.R | FixedReset | 44,406 | TD crossed 40,000 at 27.17. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.17 Bid-YTW : 3.13 % |
| TD.PR.G | FixedReset | 41,742 | TD crossed 25,000 at 27.42. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 27.40 Bid-YTW : 3.13 % |
| There were 21 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.I | OpRet | Quote: 25.61 – 25.98 Spot Rate : 0.3700 Average : 0.2886 YTW SCENARIO |
| BAM.PR.H | OpRet | Quote: 25.41 – 25.71 Spot Rate : 0.3000 Average : 0.2220 YTW SCENARIO |
| SLF.PR.G | FixedReset | Quote: 25.35 – 25.60 Spot Rate : 0.2500 Average : 0.1794 YTW SCENARIO |
| BAM.PR.O | OpRet | Quote: 26.00 – 26.33 Spot Rate : 0.3300 Average : 0.2634 YTW SCENARIO |
| CIU.PR.A | Perpetual-Discount | Quote: 22.42 – 22.80 Spot Rate : 0.3800 Average : 0.3148 YTW SCENARIO |
| BNA.PR.E | SplitShare | Quote: 24.48 – 24.70 Spot Rate : 0.2200 Average : 0.1651 YTW SCENARIO |
Lawyer has a fiduciary duty to his client.
Lawyer does a real estate conveyance for a set fee for the transaction.
Lawyer, while meeting with client on the real estate transaction, advises client to get a will done.
Lawyer does will and charges a set fee for the will, not hourly based fee.
What do you know – a fiduciary charging transaction based fees! Thought it wasn’t possible.
This is a good point, but one that underplays at least one very significant difference in the transactions.
The lawyer in your example will get paid nothing for his recommendation that the client prepare a will – his payment is for the actual work in drafting it. In the investment industry, the advice is the product – the direct costs of putting Granny’s $10,000 into Big MER Fund are negligible.
The issue of enforcibility is also important. It is very difficult to imagine a lawyer getting into trouble for suggesting that a client create a will; it is equally difficult to imagine a broker getting into trouble for suggesting that Big MER Fund is the best because they have an uncanny ability to sense when the market is at a turning point.
It is only since 1977 that US lawyers were permitted to advertise and the debate continues regarding details of the propriety of this.
It is particularly noteworthy that you specify a fixed fee for the will than the more normal hourly rate; additionally, I will note that large firms will have general counsels, specifically to protect the company from sharks. These general counsels are, I understand, pushing for fee structures that eliminate the hourly rate concept.
Additionally, it should be pointed out that a perfectly good alternative exists for investors who want fiduciary duty from their investment advisor: Investment Counsel / Portfolio Managers (such as Hymas Investment Management Inc.) have this responsibility.
I found a collection of papers published by Boston University on the issue … the papers seem largely favourable to the idea of a fiduciary standard, but I’ve only just barely skimmed the publication.
The first paper urges imposition of the fiduciary standard at the institutional level; implicitly assuming that institutional salesmen (i) understand what they’re selling, and (ii) have some ability to discern value.
Hahahahahahahaha! That’s when I stopped reading carefully.