Baby Boomers – Who Do You Trust Now?

It seems every day is another day of revelation. As we move into the darkest days of this recession/depression we can expect more worms to be unearthed.

So who do you trust now with your hard-earned retirement nest egg?

The mantra the “Markets Always Go Up” is the preferred method of taking your wealth and speculating with it to pay massive bonuses.

They hang on to your money with another magic phrase telling you to “Buy and Hold” for the long term. They have been incredibly successful selling this message – in a bull market when everyone is greedy.

In a major bull market they can normally recover any short-term losses before you ask for your money back. This time it didn’t work though because the markets crashed.

Unless they go too far and turn their funds management into ponzi schemes they are protected by law from being accountable for losing your money. Never forget that little clause in tiny print on all their documents,

Past Performance is NO Guarantee of Future Returns

Never a truer word was said.

If you put your money with a large fund manger they are often part of a major bank. That bank may be involved in lending to major corporations, have shares in those corporations and their wealth management arm is likely to have shares in them too, especially if they are in a stock index the funds track.

It all works well when the market goes up. However what happens when a corporation defaults on its loans. What is the banks responsibility and to whom? They will probably tell you their share-holders are first.

The first thing then may be to try and recover the debt or get some control over the company and its assets.

The next thing might be to try and slowly sell down the shares maybe before the market knows anything. This may be insider trading (I’m no expert on this) but then again if it has loaned out money and it is likely to lose that money isn’t it the responsible thing to do? The bank has a responsibility to protect its capital for its share-holders.

What about you with your money in their wealth management arm. The bank has to try to keep your money in its wealth funds to maximise its profits. So its research arm may be sending out messages like “Markets always go up”, this is the time to buy, you need to invest for the long term.

In the worse case it may put a buy recommendation on the very stock it is selling or has a problem loan with. Think Enron if you need to be reminded.

If things really get bad and too many of you ask for your money back the fund can normally freeze redemptions at any time. So the bank really can decide in its own time when to stop losing money from its funds due to redemptions. You have no control over your money.

Personally I find it unbelievable that a bank can loan to companies it invests in and can have its research arm make recommendations on those same stocks to its clients. And can also have its wealth management arm invest in those same stocks on your behalf.

They tell me there are chinese walls and conflict of interest policies but when some stocks lose 70-90% of their value I’m not sure if these will stand up to scrutiny in many instances. Polices are fine but its people that have to implement them and if their job is on the line will they measure up?

I don’t think so Tim!

The evidence is the financial world now seems to think it is okay to NOT live up to their obligations and integrity is definitely out the window. Evidence the sub prime crisis and the reluctance by many banks to admit any problems.

So it seems to me I’d be very wary of putting ALL my money with one wealth fund manager that is part of a large banking organisation.

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