Human beings are so creative in the “dark side” of the company are developing new products and services beneficial. Facing the huge potential financial benefits, however, some corporate executives cannot resist taking an extra dessert even before their shareholders have finished dinner. Some scandals have more impact on investors than others, and most produce unwarranted layers of government regulation and control that stifle honest creativity.
Plain vanilla fraud and theft are less worrisome to me than situations where public acceptance of “business as usual” practices allows inherently bad or false product ideas and blatant bad become accepted by regulatory authorities, financial professionals, and myopic gullible consumers. Here are some candidates for future “Blockbuster Scandal Awards” (BS Awards, if you do not): Variable Life Insurance and annuities, Wrap Fee Managed Investment Accounts window dressing Portfolio, Asset Allocation funds and Obscene Executive Compensation.
1) The main variable annuities, variable products are a relatively new thing in the insurance sector, around about 1980. Before that, the conventional wisdom of market marked the shock too risky for the benefits of life insurance and pension plans guaranteed contract. In fact, these benefits were “guaranteed” for so long that it became a generic trust anyone in the market for either. And this emphasizes that these products are marketed to potential policyholders and pensioners?
Because if the 8% commission on annuities straight is not enough, plus the bonus to the bottom of the variable annuity irresistible … finance professionals. In addition, this product is so beneficial for companies that manipulate their prices more competitive. After the introduction of variable benefits have been more insurance company failures and scandals, rather than just a few disappointed recipients of reduced pension. What is your retirement plan?
2) Wrap Fee Investment Accounts: From the beginning of wealth, wealthy investment managers used to protect and grow their portfolios. Most investment managers had few large customers who tend to the rest of the emerging financial industry focused on asset protection and asset creation through life insurance. Most investment managers today (workers) are employed by financial institutions to monitor thousands of mutual funds of millions of financial investors of all shapes and sizes. There are more shares of mutual funds not individual stocks on the New York Stock Exchange. Most investors today employ many investment managers and not talk to any of them.
Enter the product personally managed investment portfolio offered by most large financial institutions. For a single fee, you receive the personal services of a professional investment manager and a portfolio specifically designed for you. Unless, of course, neither should you. You get exactly the same portfolio as everybody and suddenly, no matter the price … an investment fund with separate opinions. But of course you can talk with the director whenever you want, change your asset allocation set aside a reserve for future expenditure, etc. Yes you can!
Note that “Flat Fee” managed accounts are quite different and can even be managed separately and personally.
3) Portfolio Window Dressing: Every quarter, every year we hear of the adjustments that portfolio managers do what they are trying to look smart to their largest customers. Now in a discipline (investment) all officially recognize as a long-term commitment to a specific strategy or plan, why do the Masters of the Universe spend so much time to manipulate their performance numbers in the short term? Why is this considered business as usual instead of common fraud?
4) Asset Allocation Mutual Funds: I look at asset allocation a little differently than most professionals seem to and I regulate and monitor a portfolio structure using the cost method rather than titles their market value. But how, logically, can a one-size-fits-all Mutual Fund be the right combination for all investors? Here’s a definition found on the Internet: “A mutual fund that rotates among stocks, bonds and money market securities to maximize 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 investments such as stocks, bonds, mutual funds, cash, real estate, options, etc. By diversifying individual basis assets, we hope to create a favorable risk / return portfolio. ”
In fact, asset allocation planning tool that determines structural what percentage of an investment portfolio is invested in equities for growth and what percentage will be invested to produce income. The fair distribution is a function of investor age, marital status, financial situation, employment status, pension plans, expenditure needs, risk tolerance, family responsibilities, etc. Diversification occurs in both classes of assets (only two). One size fits all … who jokes that?
5) Corporate Executive Compensation: I strongly believe that everyone has the right to be filthy rich, legally, of course. I respect anyone who comes to honesty, because their success creates jobs, opportunities, wealth and standards of living for all. But once you sell shares of their successful businesses to the public, have a responsibility to share future profits and growth. Obscene executive suite compensation (including chauffeured limousines) is simply stealing from shareholders.
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