Posts filed under “Finance”

What This Industry Needs is a Good Disruption

The financial services industry is in flux. Traditional investing beliefs have become discredited, challenged by experience, factually disproven by data-driven analyses. No, the markets are not efficient; No, human are not rational economic players; No, Buy & Hold is not a successful strategy, nor is frenetic day trading.

The big wire houses are still reeling from their collapse and bailout during the credit crisis. Assets are fleeing, looking for a home where they will be treated better. High net worth clients are reviewing options. Studies show that when an inter-generational wealth transfer occurs, client retention by the majors is in the single digits — more than 90% of big firm clients leave, and take their money with them. So long, thanks for nuthin.’

Can we blame them? The kids have heard their parents bitch about their advisors for 20 years: Cookie cutter portfolios, crashes in 2000 and 2008-09. They may have been well served at times, but the bottom line is still the bottom line — and on that basis, the big firms have failed all too many clients. Hence, the enormous exodus.

Into this void, this industry needs a major disruption. There are all sorts of financial professionals who are disgusted with their own industry. We need to reinvent the concept of investment advisory services. It requires new technology, new behavioral understanding about ourselves, ours attitudes, and our emphases.

The current offerings in Asset Management and 401k plans are under-served by Wall Street. The traditional asset management business has looked at clients as little more than crops to be harvested. It has evolved from a “Churn ‘em & burn ‘em” approach to a “Net’em & forget ‘em” of today. I reject these business models as dangerous value destroying dinosaurs. Why don’t more firms use an approach that applies intelligent risk management metrics and quantitative tools? Why stick with the traditional analytics that have served investors so poorly all these years?

Consider the typical 401k sponsor today: They are focused on high fees, mutual fund driven, layered with excesses. Some have gone so far as to call the entire business “skimming.” It is ripe for a low cost, ETF driven disruptive new model — one that Apple has actually implemented.

What can change this industry? What new technology will alter the dynamic? What legislation will shift the balance of power back to the customers?

What this industry needs is a good disruption . . .

Category: Finance, Investing

Why Is Finance So Complex?

Steve Waldman was a software developer who became fascinated by finance and started writing about it. He is now a doctoral student in finance at the University of Kentucky. He blogs at Interfluidity. ~~~ Lisa Pollack at FT Alphaville mulls a question: “Why are we so good at creating complexity in finance?” The answer she…Read More

Category: Finance, Think Tank

QOTD: The Illusion of Skill

Our quote of the day comes from an article in this Sunday’s NYT magazine, Don’t Blink! The Hazards of Confidence by Daniel Kahneman: “The illusion of skill is not only an individual aberration; it is deeply ingrained in the culture of the [financial] industry. Facts that challenge such basic assumptions — and thereby threaten people’s…Read More

Category: Finance, Philosophy, Psychology

Fade the Consumer Credit Headline (For Now)

The Fed released its G.19 report on Consumer Credit last Thursday, and it stirred some optimism (see also here): The new U.S. consumer credit numbers reflect an economy that is reaccelerating, and that is very bullish for growth — as well as inflation. All in all, U.S. household credit surged by $7.62 billion in February,…Read More

Category: Consumer Spending, Credit, Current Affairs, Data Analysis, Economy, Finance

UK Emergency Budget

Information is Beautiful has this tasty chartporn depicting the UK emergency budget: > click for larger graphic via The Guardian

Category: Digital Media, Finance

Personal Bankruptcy in America

Giant graphic of information, courtesy of Billshrink: click for ginormous graphic

Category: Economy, Finance

The (F)utility of GDP?

Interesting argument here by Richard Posner on the (f)utility of GDP. Money shot: “But it is necessary to emphasize that it [GDP] is just a starting point. I disagree with economists who say the “recession” ended in the third quarter. The depression (as I think we should call it if only because of its enormous…Read More

Category: Data Analysis, Economy, Finance

Austrian bank collapse furthers fears of contagion

The Austrian government has nationalized the insolvent bank Hypo Group Alpe Adria (HGAA). The financial institution, which has 40 billion Euros in assets, is the country’s sixth largest bank. But, in relative terms, this is a very large bankruptcy – using GDP at purchasing power parity, an American HGAA would have assets of $2.5 trillion,…Read More

Category: Bailouts, Currency, Finance

The Greatest Deception in the History of Finance

What is the greatest deception in the history of finance?  Depending upon your perspective, some entities and events of deception that come to mind might include corporate accounting scandals, rogue traders, Ponzi schemes, and various entities and events related to the financial crises (market bubbles) throughout history. “The greatest hazard of all, losing one’s self,…Read More

Category: Finance, Psychology

New York vs Singapore vs London: Best Financial Center?

Fascinating stuff: “New York has withstood the worst economic crisis in seven decades and remains the leading global financial center, followed by Singapore, which topped London as investors’ preferred place for doing business, according to Bloomberg Global Poll. Twenty-nine percent of respondents in the quarterly poll of investors, traders and analysts who subscribe to the…Read More

Category: Finance