Stocktwits.tv interview with John Benedict
The other day I had the pleasure of being interviewed by Leigh Drogen of StockTwits.TV
and was asked to share my opinions on the financial services industry, economy and markets. (Interview can be found below).
Stocktwits is a fast growing social network community for investors, traders, and advisors to share opinions and ideas on stocks and the market. The interview was also conducted with Derek Hernquist of Integrative Capital
, a fellow investment advisor for whom I have a ton of respect for.
Advisors who are flexible and manage risk like Derek and myself are a rare breed. Most brokers and advisors cannot freely invest or advise due to restrictions from their broker dealers. The industry is still dominated by brokers who continue to extol the virtues of buying and holding investments. This is fine option for anyone that has a 30 year time horizon. One must also be patient with a buy and hold strategy during those when the market is in a long term bear market (like now). History has shown that markets go through different phases. In general these phases are either up, down or sideways (an oversimplification). These long term phases can last anywhere from 15 to 18 years on average. The chart below shows a 15-18 year stock market cycle from 1920 to 2010: Note that the current 15-18 down/sideways phase started back around 2000.
chart courtesy of www.decisionpoint.com
The article showed that people are confused on what roles and responsibilities different advisors have towards their clients.
A survey about fiduciary roles was conducted in August among a sample of 2,012 people age 18 and over by Omaha, Nebraska-based Infogroup Inc.and found the following:
· Three out of four U.S. investors mistakenly think that financial advisers at brokerage firms are required to put clients’ interests first.
· Seventy-six percent of investors said financial advisers, a term used by major brokerage firms such as Bank of America Corp.’sMerrill Lynch to describe their salespeople, must uphold a fiduciary duty to their customers.
· Thirty-four percent of investors said that financial advice is the primary service offered by stockbrokers, even though their main job is actually to buy and sell stocks.
· Ninety-three percent said brokers should be required to disclose conflicts in advance, such as cash payments or vacation trips they would receive from a mutual-fund company in exchange for selling its product, compared with 86 percent in similar surveys from 2004 and 2007.
· Sixty percent of respondents said they thought insurance agents had to uphold a fiduciary duty, which isn’t true.
Here is the "money" quote in the Bloomberg article:
“Investors are clueless when it comes to the different standards of care that apply to brokers and investment advisers,” Barbara Roper, director of investor protection for the Consumer Federation of America, said in a statement. “This lack of understanding is not because investors are stupid; it is because, bluntly stated, the policy itself is stupid.”
Placing blame: Blame for the confusion rests at the feet of our regulators who have allowed broker dealers and their agents to confuse their clients on what their duties really are. The fact remains that only Registered Investment Advisors (RIA) have a fiduciary duty to act in their clients best interest. RIA's need to be transparent and disclose all conflicts of interest. All other types of advisors do not.
Brokers don't need to disclose the huge sums of money they rake in when they switch from one brokerage house to another. Ever wonder why a broker leaves one firm for another? Ask them how much they made. RIA's would need to disclose any and all conflicts.
Brokers and Advisors don't need to disclose how much they are making off selling one product over another. Ever wonder how a broker chose to sell one annuity over another? Next time ask what the difference in commission was.
Ever wonder how your broker gets to go on so many great vacations? Next time ask if they won it for selling volume of a specific product.
The SEC is currently finalizing language that may make all advisors fiduciaries. I am doubtful this will even happen.
The last half of the interview was spent discussing our firm's models along with my favorite stock setups. Our firm offers access to 12 different models or strategies
. Each one of our strategies offers a different risk profile. Each strategy is built upon its own unique proprietary indicator that helps us determine times to be invested and times not to be. Methods like these are prone to not working just like the a buy and hold strategy. The difference is that we have multiple strategies to compensate and our firm is flexible to making changes if need be.
On one hand I believe that most of the bad news could already be built into stock prices. Markets don't like negative surprises but I am wondering what negative news is left that even the average investor doesn't know? Think back to the halcyon days of late 2007. Your house was going up in price, your stocks were climbing, everyone had job security, things were great right? Our firm saw the storm clouds brewing and were concerned that no else saw them or seemed to care. Our warning was that a large dislocation could occur. These days the average person on the street is acutely aware of most issues. Negative events are no longer a surprise. The markets can certainly trade lower, which we think is a good possibility, later on. At some point negative news will be in fact negative. For now I believe that the markets could continue to climb a wall of worry as they say. The day of recognition has been put off yet again.
I hope you enjoy the interview.