Australia has now followed the U.K.'s lead in banning commissions on financial product sales.

They have also gone a step further by requiring (wait for it...) client confirmation before automatically renewing their advice arrangements.

"Starting July 1, 2012, all Australian financial advisers will be subject to the following:

• Commissions on the sale of new financial products will be forbidden.

• A fiduciary standard will apply to all advisers.

• Volume-based discounts will be banned.

• Clients will be asked to renew their advice arrangements annually."

This sounds shockingly like "pay as you go, fee-only financial planning" but I won't sue them. 
 

Investment News:  Regulatory future for U.S. advisers now on display -- in OZ

BBC News:  Financial Advisers' commission to be banned from 2012 

The most publicized firm in the life settlements business, Life Partners, is under investigation by the SEC.  Meanwhile, its investors aren't happy.

A recent Wall Street Journal article details the checkered history of the firm and its founder and highlights many of the risks of investing in life settlements, including bad life expectancy estimates:

In 2002, for instance, Life Partners brokered investments in 297 life policies. Actuaries say if life-expectancy calculations on a group of people are well done, half should die by their projected dates. But in 95% of these policies, the insured was still alive at the end of the life expectancy the company supplied to investors. Policies brokered in 2003 and 2004 show similar patterns.

Not to mention the troubling bio of the firm's founder and chief executive:

Mr. Pardo, 68, is a college dropout who became a decorated Vietnam War helicopter gunship pilot. He started a solar-heating business, American Solar King, that became a stock-market favorite in the early 1980s. The renamed ASK Corp. later filed for bankruptcy, and in 1989 the SEC accused it and Mr. Pardo of overstating revenue and profits. He settled in 1991 without admitting or denying wrongdoing.  The same year, he moved into the nascent life-settlement industry by founding Life Partners. Mr. Pardo found himself in the SEC's sights again in 1994, when it charged his new firm with selling unregistered securities. Life Partners won a federal-court ruling that U.S. securities law didn't cover its products

Read the entire Wall Street Journal article.

From Investment News:

"Despite market sell-off, Bill Gross goes on a $21.4 million [his own money] bond-buying binge.  PIMCO fund manager is predicting the end of the 30-year bond rally, but he keeps plowing his own money into fixed-income funds."

Ignore him either way... his track record is less accurate than a coin flip:  Bill Gross Guru rating.

Instead, stick to an appropriate long-term asset allocation that deliberately reflects your goals, time horizon, risk tolerance, and financial circumstances.

The S&P Persistence Scorecard, released twice per year, tracks the consistency of top performing mutual funds over yearly consecutive periods and measures performance persistence (ie, repeat outperformance).

The results are not encouraging for investors who think it's possible to pick investment managers who can consistently outperform the market:

Very few funds have managed to consistently repeat top-half or top-quartile performance.  Over the five years ending September 2010, only 4.10% of large-cap funds, 3.80% of mid-cap funds, and 4.60% of small-cap funds maintained a top-half ranking over five consecutive 12-month periods.  Expectations of a random outcome would suggest a rate of 6.25%.

Looking at longer-term performance, 14.20% of large-cap funds with a top-quartile ranking over five years ending September 2005, maintained a top-quartile ranking over the next five years.  Only 8.50% of mid-cap funds and 27.30% of small-cap funds maintained a top-quartile performance over the same period.  Expectations of a random outcome would suggest a repeat rate of 25.00%.

No wonder active investment management (ie, "beating the market") is called a loser's game.

"The man who thinks he knows something does not yet know as he ought to know."
-- 1 Corinthians 8:2 

According to a recent survey, 

Many investors are confused about which financial professionals are now held to a fiduciary standard, the survey also found. Three out of five investors surveyed mistakenly believe that insurance agents have a fiduciary duty and two out of three believe that stock brokers are held to that standard, the poll found. In addition, 75% of respondents indicated they believe the fiduciary standard applies to financial planners, and 77% indicated they believe it applies to investment advisers.

Yet,

Of survey respondents, 91% indicated they believe that a stock broker and an investment adviser who provide the same kind of investment-advisory services should have to follow the same investor-protection rules.

Almost all respondents--97%--indicated that a professional who provides investment advice "should put your interests ahead of theirs and should have to tell you up-front about any fees or commissions they earn and any conflicts of interest that potentially could influence that advice."

In addition, 96% of respondents agreed that the fiduciary requirement should extend to insurance agents who sell investment products.

Despite this (because of this?), the brokerage and insurance industry lobbyists are fighting the "fiduciary standard" harder than ever.

So, don't fight city hall.  Leave.  Refuse to work with any financial firm or individual that isn't required by law to put your interests first.  It's a short list.  I am accepting new clients.

Read the whole article

Stark Investments LP, among the oldest surviving hedge fund managers, whose flagship hedge fund saw its assets and performance plummet in the wake of the 2008 credit crisis has a deal for its investors:  agree to a lockup period of one year and have your fee discounted.

"...with esoteric, illiquid investments... Stark's assets plunged nearly 71%.. as of July 1 from a peak... Aug. 31, 2007."

I recently read a fairly disturbing article in American Way Magazine entitled "The Kid."

It's about a 21 year old college student running an investment club called the "Shark Fund."

"an eye-popping 341 percent return since its inception." 

One of the highlights of Suleiman’s life: meeting (Jim) Cramer at a taping of the show at the CNBC studios in Englewood Cliffs, N.J. 

“Here’s a legend with a $100 million contract with CNBC, who doesn’t need to give me the time of day, and he’s taking the time to talk to me about stocks,”  

Suleiman says, still amazed. “He told me, ‘Keep going, kid, and don’t give up, because you’ve got something special.’ That moment really stuck with me.”

He has passed the milestone of a 300 percent fund gain, a tripling of cash that would have even market legends like Legg Mason’s Bill Miller — famous for beating the stock- market average for 15 straight years — green with envy.

"A year ago, his Value Trust fund had $16.5 billion under management. Now, after losses and redemptions, it has assets of $4.3 billion,  

according to Morningstar Inc. Value Trust's investors have lost 58% of their money over the past year, 20 percentage points worse than the decline 

on the Standard & Poor's 500 stock index.  These losses have wiped away Value Trust's years of market-beating performance.  

The fund is now among the worst-performing in its class for the last one-, three-, five- and 10-year periods, according to Morningstar."

There is also no record of him or his company having registered as an investment adviser with either the SEC or any state.

 That means that if he loses all of his classmate's money through dangerous, reckless, and inappropriate investments, they have no recourse.  

As if investors need anything else to worry about these days, news recently surfaced that one of the ten recently deported Russian spies was a financial adviser.

"Indeed, for the past 13 years, Ms. Murphy, whose real name is Lydia Guryev, worked as an adviser at Morea Financial Services Inc. in New York, where she reportedly earned an annual salary of $135,000. She was also a certified financial planner and a member of the New York chapter of the Financial Planning Association."

I guess it shouldn't be too surprising that the financial industry attracts more than its share of greed and corruption.

Read the whole story

"People who want to get rich fall into temptation and a trap and into many foolish and harmful desires that plunge men into ruin and destruction."

-- 1 Timothy 6:9

In his most recent installment of doom and gloom financial pornography, Paul Farrell writes:

Warning:  Crash dead ahead.  Sell.  Get Liquid.  Now.

Fascinating.

Particularly when you consider these excerpts from his book, The Lazy Person's Guide to Investing:

"The only solution is to be in the market all the time and stop jumping in and out." 

"Never try to time the market; it's too much of a gamble." 

"The market is totally random, irrational, and unpredictable." 

"Greed triggers a buying frenzy at the top of a cycle. Fear creates a selling panic at the bottom. Investors lose both ways."

and the kicker.... wait for it....

"The more I know, the more I know I just don't know, and neither does anyone else."

Another book by Paul Farrell:

The New Money A$trology Success Formulas