Rockstar's Ramblings is another skeptical blog that I enjoy.
Their Doggerel series is a series that, I suspect, could go on for a while.
But the this series is immensely entertaining, and I hope it continues on for a good while.
I'm providing links to these so that I can have them all in the one place.
Hopefully, though, you'll all get to enjoy them, too.
Rockstars' Ramblings: Doggerel #1: "Supernatural"
29 May 2006
28 May 2006
35th Skeptics’ Circle
Skeptico (or is it "Skeptico"?) is hosting the 35th Skeptics Circle.
And it is a corker.
Of particular interest to me was one blogger, Einzige's review of a Real Estate Guru (now there's an overused term) named John Burley.
Apparently Burley's investment "tips" read a little like a horoscope.
Not enough financial stuff gets a skeptical eye cast over it, so kudos to Einzige.
Elsewhere, this a bumper read with all sorts of stuff for everyone.
Read it here:
Skeptico: 35th Skeptics’ Circle by a guest blogger
And it is a corker.
Of particular interest to me was one blogger, Einzige's review of a Real Estate Guru (now there's an overused term) named John Burley.
Apparently Burley's investment "tips" read a little like a horoscope.
Not enough financial stuff gets a skeptical eye cast over it, so kudos to Einzige.
Elsewhere, this a bumper read with all sorts of stuff for everyone.
Read it here:
Skeptico: 35th Skeptics’ Circle by a guest blogger
18 May 2006
Blah blah, da Vinci Code...
One of the great things about media bandwagons is the choice of who you sit next to when you inevitably jump aboard.
There are usually so many bitchingly brilliant angles to explore.
Writers like myself just have an absolute field day, because you can just pick and choose whatever it is that you want to write about. From whatever angle you like.
Take the Beaconsfield mine disaster in Tasmania recently.
Disaster!
Media brings in big guns into a small Australian country town and goes berzerk.
We had the media on miners, mines, unions, corporations, digging techniques, pie shops, buried miners' families, you name it it was there.
And if it wasn't stuff like that, we had a few jealous hacks going after other media identities - take the Herald-Sun's incredible character assassination attempt on Naomi Robson.
Robson happens to be pretty much teflon coated, so the Hun's attack will probably be considered over time to have been in vain.
(Still pondering the motive for this one. Who exactly did Robson manage to piss off?)
So the next big media blockbuster appears to be the release of what is possibly the year's most anticipated movie: The da Vinci Code.
One other angle that can be pursued for any media bandwagon is the good ol', "I'm not writing about this. This is beneath me. Media bandwagons suck," angle. They're always good.
How many times have I refused to comment on the Big Brother phenomenon, even though by the end of the season, the media is positively swimming in it?
But anyway, back to the da Vinci Code movie.
Regular readers of my blog are probably rolling their eyes and thinking, "Oh God. No. Not another sodding article bagging the church."
I'm gunna surprise the pair of you because I'm not going to write about that.
This goes back to the point that I raised at the start, and that there is so many topics I could write about from the insane media circus that is this movie:
1. The secret world that is Opus Dei.
2. The inevitable call to boycott this movie by various church groups.
2. The likelihood of Jesus Christ being someone's dad.
3. The religious nuts going mental as a result of someone challenging their worldview.
4. The silliness of believing anything in a book that is clearly labelled near the barcode as being "Fiction"
5. The hypocracy of the Danish film distributors (they're refusing to show it)
6. The sensitivity of the Danish film distributors for refusing to show it after the cartoons fiasco (told you there were many angles)
7. The acute embarrassment Dan Brown must find himself in, having based his book on a known forgery.
8. The work of genius of Brown - would anyone else have thought of deliberately basing a novel on a forgery? (yes, I know it's been done before - this is me playing devil's spin doctor, now)
9. Was Audrey Tautou miscast? Would Sophie Marceau have been a better choice?
That will do.
These topics have been done before, and reasonably well, too.
The Two Percent Co did it superbly here.
They even got stuck into the albinos who are protesting that it puts all albinos in a bad light.
See what I said about so many angles to choose from?
Instead, I'm going to go after all the highbrow types out there who will bag this movie despite not having seen it.
Now, for those of you who have been living under rocks, The da Vinci Code was written by Dan Brown some years ago.
It was a bit of a sleeper on the bestseller list initially, but eventually word of mouth got around and people started reading it.
And I mean, READING IT. I was on a train home from work roughly two years ago, and you could not turn around without seeing someone reading the sodding thing.
And when they finished that, they went straight out there and bought Angels and Demons (the book that Brown wrote about the book's protagonist prior to The da Vinci Code), as well as the Tom Clancy-lite stuff that Brown has also written.
I had to see what the fuss was about. So I read it.
Is it a good read?
Well, it's badly written and poorly researched. The characters are never fleshed out, and the dialogue is pretty normal - there are no Tarantino-esque moments here.
Some of the plotlines are stolen from other stories and the twists in the middle and near the end have been done better hundreds of times before.
I'm not going to begin on how implausible the whole thing is.
But is it a good read?
Yes. Quite frankly, the book is a ripsnortingly good yarn from start to finish. I could not put it down.
And even though some of it was quite predictable, it was entertaining.
The problem that the highbrow face is that literary fiction is not exciting. They can't understand why the written equivalent of a High Budget Action Movie can be considered fun. And they see this fun being radiated, which creates a type of jealousy.
So they transfer this jealousy back onto consumers of popular fiction, in the same way that classical music afficionados bag rock and/or roll.
Or that fans of subtle forms of humour such as dry wit and satire do when they shitcan truly funny forms of humour such as double entendre, slapstick and smut.
I wrote a blog post about this once...
But geez. Enough about the book.
Let's jump to the movie.
Why the distributors even entertained the notion of launching it at the Cannes film festival is beyond me.
The critics put the boots in so far that I think Ron Howard must be feeling like mashed potato.
Honestly, Apollo 13 and A Beautiful Mind were amazingly good flicks. But Howard is a movie lightweight. His career has been largely pedestrian filler that does not have the same kind of vision as your truly great directors such as Tim Burton, Terry Gilliam, Peter Jackson, the late Stanley Kubrick or Quentin Tarantino to name but a few.
But what critics like and don't like is not a reliable guide to whether a movie is any good or not.
Take for example that godawful movie Lost in Translation.
Not one critic disliked this movie.
However, I can say without exaggeration, that it was one of the two most appalling wastes of time that I have ever spent inside a movie cinema.
The other was Waking Life - if I was this pretentious, I would be shot. Why did this not happen with the film stock for this movie?
And when I say shot, an elephant gun at 5 paces ought to render the celluloid unrecoverable.
But back to the movie I'm supposed to be writing this post about.
The da Vinci Code. Grr.
I've already heard highbrow friends complain that this movie is crap. And they haven't seen it yet. The initial wave of abuse from critics and the highbrow alike is truly monumental.
This reminds me of the last time I saw this:
Armageddon.
This was a fun little High Budget Action flick built on what can only be regarded as a frightfully wrong premise. That is, a comet will crash into the earth unless it's blown up first. So why not fly a bunch of oil rig operators up to blow it to smithereens with a big nuke?
The initial wave of critical rape crashed, much like the wave in the other disaster flick of this period whose name escapes me, and in the second wave of reviews, critics backlashed against the first bunch of critics.
Suddenly, movie criticism was interesting.
I'm tipping that this will happen to this movie.
You see, the thing that is most predictable is not aspects of the plot.
It's how the critics behave.
There are usually so many bitchingly brilliant angles to explore.
Writers like myself just have an absolute field day, because you can just pick and choose whatever it is that you want to write about. From whatever angle you like.
Take the Beaconsfield mine disaster in Tasmania recently.
Disaster!
Media brings in big guns into a small Australian country town and goes berzerk.
We had the media on miners, mines, unions, corporations, digging techniques, pie shops, buried miners' families, you name it it was there.
And if it wasn't stuff like that, we had a few jealous hacks going after other media identities - take the Herald-Sun's incredible character assassination attempt on Naomi Robson.
Robson happens to be pretty much teflon coated, so the Hun's attack will probably be considered over time to have been in vain.
(Still pondering the motive for this one. Who exactly did Robson manage to piss off?)
So the next big media blockbuster appears to be the release of what is possibly the year's most anticipated movie: The da Vinci Code.
One other angle that can be pursued for any media bandwagon is the good ol', "I'm not writing about this. This is beneath me. Media bandwagons suck," angle. They're always good.
How many times have I refused to comment on the Big Brother phenomenon, even though by the end of the season, the media is positively swimming in it?
But anyway, back to the da Vinci Code movie.
Regular readers of my blog are probably rolling their eyes and thinking, "Oh God. No. Not another sodding article bagging the church."
I'm gunna surprise the pair of you because I'm not going to write about that.
This goes back to the point that I raised at the start, and that there is so many topics I could write about from the insane media circus that is this movie:
1. The secret world that is Opus Dei.
2. The inevitable call to boycott this movie by various church groups.
2. The likelihood of Jesus Christ being someone's dad.
3. The religious nuts going mental as a result of someone challenging their worldview.
4. The silliness of believing anything in a book that is clearly labelled near the barcode as being "Fiction"
5. The hypocracy of the Danish film distributors (they're refusing to show it)
6. The sensitivity of the Danish film distributors for refusing to show it after the cartoons fiasco (told you there were many angles)
7. The acute embarrassment Dan Brown must find himself in, having based his book on a known forgery.
8. The work of genius of Brown - would anyone else have thought of deliberately basing a novel on a forgery? (yes, I know it's been done before - this is me playing devil's spin doctor, now)
9. Was Audrey Tautou miscast? Would Sophie Marceau have been a better choice?
That will do.
These topics have been done before, and reasonably well, too.
The Two Percent Co did it superbly here.
They even got stuck into the albinos who are protesting that it puts all albinos in a bad light.
See what I said about so many angles to choose from?
Instead, I'm going to go after all the highbrow types out there who will bag this movie despite not having seen it.
Now, for those of you who have been living under rocks, The da Vinci Code was written by Dan Brown some years ago.
It was a bit of a sleeper on the bestseller list initially, but eventually word of mouth got around and people started reading it.
And I mean, READING IT. I was on a train home from work roughly two years ago, and you could not turn around without seeing someone reading the sodding thing.
And when they finished that, they went straight out there and bought Angels and Demons (the book that Brown wrote about the book's protagonist prior to The da Vinci Code), as well as the Tom Clancy-lite stuff that Brown has also written.
I had to see what the fuss was about. So I read it.
Is it a good read?
Well, it's badly written and poorly researched. The characters are never fleshed out, and the dialogue is pretty normal - there are no Tarantino-esque moments here.
Some of the plotlines are stolen from other stories and the twists in the middle and near the end have been done better hundreds of times before.
I'm not going to begin on how implausible the whole thing is.
But is it a good read?
Yes. Quite frankly, the book is a ripsnortingly good yarn from start to finish. I could not put it down.
And even though some of it was quite predictable, it was entertaining.
The problem that the highbrow face is that literary fiction is not exciting. They can't understand why the written equivalent of a High Budget Action Movie can be considered fun. And they see this fun being radiated, which creates a type of jealousy.
So they transfer this jealousy back onto consumers of popular fiction, in the same way that classical music afficionados bag rock and/or roll.
Or that fans of subtle forms of humour such as dry wit and satire do when they shitcan truly funny forms of humour such as double entendre, slapstick and smut.
I wrote a blog post about this once...
But geez. Enough about the book.
Let's jump to the movie.
Why the distributors even entertained the notion of launching it at the Cannes film festival is beyond me.
The critics put the boots in so far that I think Ron Howard must be feeling like mashed potato.
Honestly, Apollo 13 and A Beautiful Mind were amazingly good flicks. But Howard is a movie lightweight. His career has been largely pedestrian filler that does not have the same kind of vision as your truly great directors such as Tim Burton, Terry Gilliam, Peter Jackson, the late Stanley Kubrick or Quentin Tarantino to name but a few.
But what critics like and don't like is not a reliable guide to whether a movie is any good or not.
Take for example that godawful movie Lost in Translation.
Not one critic disliked this movie.
However, I can say without exaggeration, that it was one of the two most appalling wastes of time that I have ever spent inside a movie cinema.
The other was Waking Life - if I was this pretentious, I would be shot. Why did this not happen with the film stock for this movie?
And when I say shot, an elephant gun at 5 paces ought to render the celluloid unrecoverable.
But back to the movie I'm supposed to be writing this post about.
The da Vinci Code. Grr.
I've already heard highbrow friends complain that this movie is crap. And they haven't seen it yet. The initial wave of abuse from critics and the highbrow alike is truly monumental.
This reminds me of the last time I saw this:
Armageddon.
This was a fun little High Budget Action flick built on what can only be regarded as a frightfully wrong premise. That is, a comet will crash into the earth unless it's blown up first. So why not fly a bunch of oil rig operators up to blow it to smithereens with a big nuke?
The initial wave of critical rape crashed, much like the wave in the other disaster flick of this period whose name escapes me, and in the second wave of reviews, critics backlashed against the first bunch of critics.
Suddenly, movie criticism was interesting.
I'm tipping that this will happen to this movie.
You see, the thing that is most predictable is not aspects of the plot.
It's how the critics behave.
11 May 2006
Is this Peter Costello's best ever budget?
Peter "Smirky" Costello handed down his eleventh budget as federal treasurer this week, and from what I've seen so far, it looks pretty good.
He's forecast a budget surplus of $10.8 billion for the 2006/2007 financial year.
Examining it in depth, the two great achievements of this budget are that all taxes on superannuation benefits for over-60s and RBLs have been abolished.
Which the cynical may like to point out (and there is definitely truth to this) that this is another example of the Howard Government pandering to baby boomers, this is good for the rest of us on several levels:
1. Only a brave future government would consider re-imposing these.
2. We all have to retire eventually.
3. Anything that simplifies tax legislation is pretty good in my book.
The budget hasn't just been about improving the tax situation of superannuation, though.
Income tax rates have been reduced.
As this is the one area that our conservative, sensationalist media can pick up on a possible way to blow holes in the budget, they've already honed in on the pay of people earning $50,000 per annum.
Apparently, they'll only take home an extra $9.81 per week.
Personally I don't have a problem with income tax rates being reduced - we have a bizarre situation in Australia where the corporate tax rate is 30%, while the top marginal tax rate will now be 45% (not including the Medicare levy).
This is designed to achieve more foreign investment, but has the unwanted disadvantage of discriminating against Australian taxpayers in favour of multinational companies.
No wonder people use offshore bank accounts and companies for tax avoidance purposes.
The other angle that our tired and unoriginal media go for when this happens is to compare apples with front-end loaders by looking at someone earning $30,000 a year with someone earning $1,000,000. This comes in the form of, "How much will each group save?"
Naturally, this gets a bite, especially on talkback radio. People can be such idiots.
Families earning up to $40,000 get the full amount of Family Tax Benefit Part A.
And so they should. No controversy here.
Costello has scrapped the cap on subsidised childcare places.
This one does concern me, and not just because I don't have kids.
This is stuffing around with supply and demand on a grand level. The obvious outcome of all this is that childcare itself will climb through the roof as parents scramble to take advantage of this.
And the net result is that the grant itself will end up being meaningless.
Not that anyone will notice this until well after the next election.
Kinda similar to how the First Home Owner's Grant contributed (along with low interest rates) to the most extreme property bubble this country has ever seen. We still haven't seen the complete fallout from this yet.
These were probably the most important new initiatives.
On the whole I like it. I think it's the best budget that he's introduced ever. It has its stupid bits, but who ever claimed that politicians were smart?
He's forecast a budget surplus of $10.8 billion for the 2006/2007 financial year.
Examining it in depth, the two great achievements of this budget are that all taxes on superannuation benefits for over-60s and RBLs have been abolished.
Which the cynical may like to point out (and there is definitely truth to this) that this is another example of the Howard Government pandering to baby boomers, this is good for the rest of us on several levels:
1. Only a brave future government would consider re-imposing these.
2. We all have to retire eventually.
3. Anything that simplifies tax legislation is pretty good in my book.
The budget hasn't just been about improving the tax situation of superannuation, though.
Income tax rates have been reduced.
As this is the one area that our conservative, sensationalist media can pick up on a possible way to blow holes in the budget, they've already honed in on the pay of people earning $50,000 per annum.
Apparently, they'll only take home an extra $9.81 per week.
Personally I don't have a problem with income tax rates being reduced - we have a bizarre situation in Australia where the corporate tax rate is 30%, while the top marginal tax rate will now be 45% (not including the Medicare levy).
This is designed to achieve more foreign investment, but has the unwanted disadvantage of discriminating against Australian taxpayers in favour of multinational companies.
No wonder people use offshore bank accounts and companies for tax avoidance purposes.
The other angle that our tired and unoriginal media go for when this happens is to compare apples with front-end loaders by looking at someone earning $30,000 a year with someone earning $1,000,000. This comes in the form of, "How much will each group save?"
Naturally, this gets a bite, especially on talkback radio. People can be such idiots.
Families earning up to $40,000 get the full amount of Family Tax Benefit Part A.
And so they should. No controversy here.
Costello has scrapped the cap on subsidised childcare places.
This one does concern me, and not just because I don't have kids.
This is stuffing around with supply and demand on a grand level. The obvious outcome of all this is that childcare itself will climb through the roof as parents scramble to take advantage of this.
And the net result is that the grant itself will end up being meaningless.
Not that anyone will notice this until well after the next election.
Kinda similar to how the First Home Owner's Grant contributed (along with low interest rates) to the most extreme property bubble this country has ever seen. We still haven't seen the complete fallout from this yet.
These were probably the most important new initiatives.
On the whole I like it. I think it's the best budget that he's introduced ever. It has its stupid bits, but who ever claimed that politicians were smart?
08 May 2006
Vale Grant McLennan
Grant "GW" McLennan, guitarist, vocalist, songwriter and effectively half of legendary Australian band The Go-Betweens is dead.
He died in his sleep in his home in Brisbane on Saturday 6 May.
Some said when McLennan and Robert Forster (also guitarist, vocalist, songwriter and effectively the other half) reformed The Go-Betweens at the start of the noughties it wouldn't properly be The Go-Betweens without Amanda Brown, Lindy Morrison, Robert Vickers or John Wilsteed.
Well, the death of GW effectively clinches it. There ain't no way they're re-forming now.
The first time that I heard Cattle and Cane (which is one of my nominations for Aussie-est song ever), my jaw dropped.
It appeared to be in 10/4 for a start.
Also, there was this urgent guitar that drove the song. Not bad considering the fact that the guitar work was acoustic.
I had no idea what McLennan was singing about in this tune - it's one of those dreamy tunes where the words are totally unimportant. Which is the sign of any good tune.
It also had this kind of eerieness to it. Very unusual.
Mind you, the vocal tracks to Go-Betweens tunes were always mixed right down with the other instruments.
It doesn't matter. He will be missed. Rest in Peace.
He died in his sleep in his home in Brisbane on Saturday 6 May.
Some said when McLennan and Robert Forster (also guitarist, vocalist, songwriter and effectively the other half) reformed The Go-Betweens at the start of the noughties it wouldn't properly be The Go-Betweens without Amanda Brown, Lindy Morrison, Robert Vickers or John Wilsteed.
Well, the death of GW effectively clinches it. There ain't no way they're re-forming now.
The first time that I heard Cattle and Cane (which is one of my nominations for Aussie-est song ever), my jaw dropped.
It appeared to be in 10/4 for a start.
Also, there was this urgent guitar that drove the song. Not bad considering the fact that the guitar work was acoustic.
I had no idea what McLennan was singing about in this tune - it's one of those dreamy tunes where the words are totally unimportant. Which is the sign of any good tune.
It also had this kind of eerieness to it. Very unusual.
Mind you, the vocal tracks to Go-Betweens tunes were always mixed right down with the other instruments.
It doesn't matter. He will be missed. Rest in Peace.
01 May 2006
What the hell is wrong with financial planning? (Part 1)
Financial Planning is an industry well short of maturity in Australia.
It can be considered an infant industry - hey, it's only been going since the late eighties in Australia. Financial Planning was the logical successor to the Life Insurance Advice industry, which needed room to grow.
Like all infant industries, Financial Planning is temperamental, emotional, irrational and lacks a substantial degree of theory behind the practical... and its practitioners, likewise.
This blogger happens to be a former financial adviser, and still works in close proximity to the financial advice industry. So he's allowed to bag it.
Once upon a time, financial advisers in Australia were accorded a social status marginally below that of Real Estate Agents and Plaintiff Lawyers and marginally higher than that of sufferers of Hansen's disease.
Now, thanks to a raging bull market, clients think that financial advisers can do no wrong.
And it's being reflected in society's opinion of them, showing that their popularity has increased.
But is the industry resting on its laurels?
This blogger has noted in the past that the FPA very much appears to have favoured its licensee members, and not the public interest when it has been making policy.
For example, the tectonically slow pace of reform on adviser commissions appears to be moving in the direction of a model rejecting commissions. It is clear to even Blind Freddy that commissions for advisers is a blatant potential conflict of interest, however, the FPA could not spot a conflict of interest if it swung a cricket bat up between its legs.
Given the slow pace of policy reform from the industry's key body, which represents the vast majority of financial advisers and advice houses, what is in the offing is a potential powderkeg of recriminations and finger-pointing once the next bear market hits.
We're already seeing this in a lightweight form with the Westpoint fiasco. What would happen if the shit were truly to hit the fan?
The irony is that the whole Westpoint thing could easily have been avoided if financial advisers had stayed true to the old maxim "build and diversify".
Clients who have been burnt appear to have one thing in common - their adviser recommended that quite a large portion of their portfolio went into just this asset.
If their advisers had been a little more diligent, there would have been substantially more attention paid to a client's diversification profile.
Or, to put it another way, I find it very, very difficult to believe that all clients who were burnt required all their property portfolio to be managed by the one very small company.
But the financial planning world does some funny things these days.
Lets look at some areas that are contentious.
1. Rejection of the Efficient Market Hypothesis (EMH)
This appears to be a recent thing and appears driven by a desire by dealer groups to use products other than index funds.
Put simply, all forms of the EMH suggest that it is impossible for anyone to expect to outdo the market consistently (on average).
Which means that, if the EMH holds, a fund that approximates the index - such as an index fund - is going to represent the best bet over the medium to long term.
The problem with the EMH is that some of the underlying assumptions have not been researched thoroughly enough to be able to even underpin the hypothesis itself.
Naturally, this means that the EMH will probably remain a hypothesis for some time, yet, as a way to test it has not been found.
(Ironically, this often leads to claims by Technical Analysis proponents that the EMH is pseudoscience. Honestly, what planet are these guys from...)
It does appear that a systematic campaign to discredit the EMH is being waged by fund managers and advice houses and, sadly, this appears slanted towards selling non-index products that charge higher fees and pay higher commissions.
And perform worse, more often than not. Oh yes. The stats are available.
2. "Active portfolio management"
Following on from point one is a new twist which is one that, financial advisers are pushing active portfolio management more and more.
This appears to coincide with a rise in fee for service advice.
This, sadly, appears to be a downside in the move to more objective advice. It now becomes in the adviser's interest for a client to not be a "set-and-forget" client.
More and more opportunities will arise to "add value" to a client's financial planning requirements.
Add value. I cannot stand that term. Whenever I hear it, I see several shades of red. It is a cynical term that means, "What can we cross-sell?" And it isn't the client who benefits, it is the adviser.
What I don't get, is that they're "adding value" in contentious areas.
Why aren't they doing stuff that they traditionally haven't touched which they need to do? Such as budget planning? Debt management? Bank account shopping?
If financial advisers are going to continue to call themselves this, they need to be able to justify this title with some more extensive work.
Otherwise, hey. Why don't we just call them "investment advisers" cause that's all they appear to do.
Back to active portfolio management, though.
The most annoying thing about his is that it is a straightforward example of financial advisers not heeding their own advice. Financial advisers tell you to hold your investment for a suggested time horizon. What kind of example is a financial adviser giving when they tell you to drop an investment and switch into another?
I recently spoke to a former colleague of mine and asked him, "What benefit is to be gained by doing this?"
His answer told many stories: "You've got to be seen to be doing something."
Seriously, this is no way to do business.
Let me make this perfectly clear.
A. Financial advisers do not have to be seen to be doing anything. This is a stupid rule perpetuated by stupid American management consultants.
B. If a financial adviser makes a recommendation which they then vary a year later, they at least should have the decency to say that they made a mistake the first time. Then, they should count the "mistakes" that they made. Do they outweigh getting it right? If they do, why should they think that they're any good?
C. Will incurring unnecessary Capital Gains Tax (CGT) events every year really help their clients?
How on earth advisers can advise with conviction if they keep changing their minds is beyond me.
3. A move towards directly owned assets
This one is a direction that I figure that financial planners had to go in eventually.
However, some advisers have gone well beyond what I would consider prudent in recommending these.
Basically, a managed fund allows someone to benefit from either a portfolio that replicates an index, or is managed by a fund manager who has a reasonable degree of skill in excess of the average schmo.
Either way, there are economies of scale cost-wise that the average investor cannot hope to replicate.
Also, in the case of active fund management, you are piggybacking off some of the brightest fund management sparks in the world.
Currently, advice houses plug direct ownership as a way that an investor can keep their costs down and their investment performance up.
This is a furphy. And I'll tell you why.
No adviser who is this good as a stock picker will be a financial planner.
The other small issue is that most client's diversification profiles do not lend themselves to direct investment.
The thing about clients' risk profiles is that they specify a maximum degree of risk that is acceptable to a client.
Clients then look at the maximum return that they are willing to aim for given a certain degree of risk.
For about 90 to 95% (my guess) of clients, lower amounts of risk for higher returns are achieved through diversification.
Advisers are supposed to take all of this into account.
Of course, beyond a certain amount of diversification, that higher potential return for a given level of risk becomes hard to come by.
Some have said that this level of diversification can be achieved by purchasing as few as 15 assets per asset class.
But you still have to pick them. Could you?
At the very least, it is said that at extremely low and high risk profiles, diversification becomes less effective.
But then as I pointed out before, 90 to 95% of people lie in between.
(Hell, if purchasing the family home is considered to be an investment decision, most Australians who own or are paying off their houses have what could be considered to be one of the most inappropriate investments ever)
The only thing I can conclude from the push to directly owned assets is that it is another "value add".
Stockbrokers have been doing this sort of stuff for years - and clipping the ticket every time a trade is executed.
Financial Planners now are doing it as a value add - hey, this fee for service thing really pays off.
It requires more intensive maintenance, more work, more transactions, and, not surprisingly, more Statements of Advice.
And you can be sure that some clients who use these services would, of course, be better off buying and holding an index fund.
What is going on?
The above are only some of the questionable tacks that financial planning these days has embarked on.
In Part 2, we'll look at someone who believes that he has the answer as to why this revolution is going on, and who stands to benefit.
Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. Are you an idiot? I didn't think you were. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.
It can be considered an infant industry - hey, it's only been going since the late eighties in Australia. Financial Planning was the logical successor to the Life Insurance Advice industry, which needed room to grow.
Like all infant industries, Financial Planning is temperamental, emotional, irrational and lacks a substantial degree of theory behind the practical... and its practitioners, likewise.
This blogger happens to be a former financial adviser, and still works in close proximity to the financial advice industry. So he's allowed to bag it.
Once upon a time, financial advisers in Australia were accorded a social status marginally below that of Real Estate Agents and Plaintiff Lawyers and marginally higher than that of sufferers of Hansen's disease.
Now, thanks to a raging bull market, clients think that financial advisers can do no wrong.
And it's being reflected in society's opinion of them, showing that their popularity has increased.
But is the industry resting on its laurels?
This blogger has noted in the past that the FPA very much appears to have favoured its licensee members, and not the public interest when it has been making policy.
For example, the tectonically slow pace of reform on adviser commissions appears to be moving in the direction of a model rejecting commissions. It is clear to even Blind Freddy that commissions for advisers is a blatant potential conflict of interest, however, the FPA could not spot a conflict of interest if it swung a cricket bat up between its legs.
Given the slow pace of policy reform from the industry's key body, which represents the vast majority of financial advisers and advice houses, what is in the offing is a potential powderkeg of recriminations and finger-pointing once the next bear market hits.
We're already seeing this in a lightweight form with the Westpoint fiasco. What would happen if the shit were truly to hit the fan?
The irony is that the whole Westpoint thing could easily have been avoided if financial advisers had stayed true to the old maxim "build and diversify".
Clients who have been burnt appear to have one thing in common - their adviser recommended that quite a large portion of their portfolio went into just this asset.
If their advisers had been a little more diligent, there would have been substantially more attention paid to a client's diversification profile.
Or, to put it another way, I find it very, very difficult to believe that all clients who were burnt required all their property portfolio to be managed by the one very small company.
But the financial planning world does some funny things these days.
Lets look at some areas that are contentious.
1. Rejection of the Efficient Market Hypothesis (EMH)
This appears to be a recent thing and appears driven by a desire by dealer groups to use products other than index funds.
Put simply, all forms of the EMH suggest that it is impossible for anyone to expect to outdo the market consistently (on average).
Which means that, if the EMH holds, a fund that approximates the index - such as an index fund - is going to represent the best bet over the medium to long term.
The problem with the EMH is that some of the underlying assumptions have not been researched thoroughly enough to be able to even underpin the hypothesis itself.
Naturally, this means that the EMH will probably remain a hypothesis for some time, yet, as a way to test it has not been found.
(Ironically, this often leads to claims by Technical Analysis proponents that the EMH is pseudoscience. Honestly, what planet are these guys from...)
It does appear that a systematic campaign to discredit the EMH is being waged by fund managers and advice houses and, sadly, this appears slanted towards selling non-index products that charge higher fees and pay higher commissions.
And perform worse, more often than not. Oh yes. The stats are available.
2. "Active portfolio management"
Following on from point one is a new twist which is one that, financial advisers are pushing active portfolio management more and more.
This appears to coincide with a rise in fee for service advice.
This, sadly, appears to be a downside in the move to more objective advice. It now becomes in the adviser's interest for a client to not be a "set-and-forget" client.
More and more opportunities will arise to "add value" to a client's financial planning requirements.
Add value. I cannot stand that term. Whenever I hear it, I see several shades of red. It is a cynical term that means, "What can we cross-sell?" And it isn't the client who benefits, it is the adviser.
What I don't get, is that they're "adding value" in contentious areas.
Why aren't they doing stuff that they traditionally haven't touched which they need to do? Such as budget planning? Debt management? Bank account shopping?
If financial advisers are going to continue to call themselves this, they need to be able to justify this title with some more extensive work.
Otherwise, hey. Why don't we just call them "investment advisers" cause that's all they appear to do.
Back to active portfolio management, though.
The most annoying thing about his is that it is a straightforward example of financial advisers not heeding their own advice. Financial advisers tell you to hold your investment for a suggested time horizon. What kind of example is a financial adviser giving when they tell you to drop an investment and switch into another?
I recently spoke to a former colleague of mine and asked him, "What benefit is to be gained by doing this?"
His answer told many stories: "You've got to be seen to be doing something."
Seriously, this is no way to do business.
Let me make this perfectly clear.
A. Financial advisers do not have to be seen to be doing anything. This is a stupid rule perpetuated by stupid American management consultants.
B. If a financial adviser makes a recommendation which they then vary a year later, they at least should have the decency to say that they made a mistake the first time. Then, they should count the "mistakes" that they made. Do they outweigh getting it right? If they do, why should they think that they're any good?
C. Will incurring unnecessary Capital Gains Tax (CGT) events every year really help their clients?
How on earth advisers can advise with conviction if they keep changing their minds is beyond me.
3. A move towards directly owned assets
This one is a direction that I figure that financial planners had to go in eventually.
However, some advisers have gone well beyond what I would consider prudent in recommending these.
Basically, a managed fund allows someone to benefit from either a portfolio that replicates an index, or is managed by a fund manager who has a reasonable degree of skill in excess of the average schmo.
Either way, there are economies of scale cost-wise that the average investor cannot hope to replicate.
Also, in the case of active fund management, you are piggybacking off some of the brightest fund management sparks in the world.
Currently, advice houses plug direct ownership as a way that an investor can keep their costs down and their investment performance up.
This is a furphy. And I'll tell you why.
No adviser who is this good as a stock picker will be a financial planner.
The other small issue is that most client's diversification profiles do not lend themselves to direct investment.
The thing about clients' risk profiles is that they specify a maximum degree of risk that is acceptable to a client.
Clients then look at the maximum return that they are willing to aim for given a certain degree of risk.
For about 90 to 95% (my guess) of clients, lower amounts of risk for higher returns are achieved through diversification.
Advisers are supposed to take all of this into account.
Of course, beyond a certain amount of diversification, that higher potential return for a given level of risk becomes hard to come by.
Some have said that this level of diversification can be achieved by purchasing as few as 15 assets per asset class.
But you still have to pick them. Could you?
At the very least, it is said that at extremely low and high risk profiles, diversification becomes less effective.
But then as I pointed out before, 90 to 95% of people lie in between.
(Hell, if purchasing the family home is considered to be an investment decision, most Australians who own or are paying off their houses have what could be considered to be one of the most inappropriate investments ever)
The only thing I can conclude from the push to directly owned assets is that it is another "value add".
Stockbrokers have been doing this sort of stuff for years - and clipping the ticket every time a trade is executed.
Financial Planners now are doing it as a value add - hey, this fee for service thing really pays off.
It requires more intensive maintenance, more work, more transactions, and, not surprisingly, more Statements of Advice.
And you can be sure that some clients who use these services would, of course, be better off buying and holding an index fund.
What is going on?
The above are only some of the questionable tacks that financial planning these days has embarked on.
In Part 2, we'll look at someone who believes that he has the answer as to why this revolution is going on, and who stands to benefit.
Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. Are you an idiot? I didn't think you were. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.
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