In Your Best Interest. W. H. (Hank) Cunningham

Чтение книги онлайн.

СКАЧАТЬ My client just inherited $350,000. What do I do?

      A: A good retail fixed-income desk will ask the IA more questions as to quality and maturity preferences and then construct a customized portfolio. If an IA just recommends a bond fund, then this IA is not doing his or her job.

      How to Get Along With a Bond Desk

      I have seen all aspects of human behaviour in managing retail fixed-income trading desks. I have built and managed three retail-oriented fixed-income trading desks since 1988. The first was for Dean Witter Canada, which was eventually sold to Midland Walwyn, which got taken over by Merrill Lynch, whose retail arm was sold off to CIBC Wood Gundy, where many of the Dean Witter IAs had come from when Wood Gundy got out of retail. What a business! The second one was built for First Marathon Securities, which needed a retail-oriented bond-trading desk to service the fixed-income needs of its rapidly growing Correspondent Network, which today clears and trades for a very large number of financial organizations: some small investment dealers, some large ones, some investment counselling firms, and some investment subsidiaries of very large FIs. First Marathon was purchased by the National Bank in 1999 and merged with Lévesque, Beaubien. NBCN became the abbreviation for the National Bank Correspondent Network. And finally, the third was another retail-focused fixed-income trading desk, this time for Blackmont Capital Inc., an independent investment dealer focused on the individual investor. MacQuarie,a prominent Australian bank, bought Blackmont from CI Financial and renamed it MacQuarie Private Wealth. To all of MacQuarie’s IAs, my former department offers a complete array of fixed-income securities via an online, real-time order entry system. It also offers customized portfolio design, market commentary, and research. As well, it offers fixed-income securities to some of the more than two hundred IIROC members that do not have their own inventories.

      Each of these trading desks has had the same philosophy — to be in charge of its own destiny and to be driven and compensated primarily by the growth in the retail fixed-income business. In this way, IAs know that their bond-trading desk is served by helping their business to grow.

      On the one hand, I have observed thoughtless, short-term-oriented IAs adversely affecting clients’ returns while alienating the trading desk at the same time. On the other, I have had the pleasure of working with enlightened, informed, intelligent, long-term-oriented IAs who reap huge benefits for their clients by adroit use of the market and the desk. No more than 10 percent of any sales force falls into this latter category — hence my focus on selecting the right advisor.

      I have seen and heard it all: IAs looking for an ask when they really wanted a bid; strange trades initiated at month end with the sole motive of generating commission; outright lies (e.g., saying XYZ broker is offering something cheaper), pleading for a lower price only to keep the difference and not pass the savings on to the client; apples and oranges comparisons, days or hours apart; confusing annual and semi-annual yield, yelling and screaming when the price cannot be matched or has changed. To a person, these IAs say they cannot trust the desk and are getting ripped off, when really it is they who are hurting themselves and their clients through this time-wasting, counterproductive behaviour.

      Trading desks make or take a thousand calls a day and execute more than a thousand trades per day. They know what they are doing, what the prices are right now. Some IAs attempt to outsmart them; what they should be doing is being straight with them, and they will receive the same treatment in return. IAs should also be spending more time with their clients. I am always amazed when an acquaintance tells me that not only does he not understand what his money is invested in, but that he does not see his advisor routinely, perhaps once a year at best! At stake here is the return to the client, as consistently bad behaviour makes us leery of certain IAs, and therefore their clients will suffer.

      Contrast this with informed IAs who realize that the desk is on their side — at least a tool for them to use, at best an active partner in helping improve their business. They trust the traders and realize that there are bargains to be had at different times as well as (with the market knowledge of the desk) assistance in timing purchases to again help clients achieve superior yield. These astute IAs are more aware of pending release times for important, market-moving news and new-issue timing. With proper desk contact, IAs learn of temporary sell-offs or rallies to take advantage of. Trusting the desk or at least being straight with it yields huge advantages. Contrast this with the mistrustful IAs who play petty games with the traders, getting their backs up. In fact, through frequent communication with the desk, IAs may pick up gratuitous tips or advice to further their clients’ (and their own) after-tax standard of living.

      You want to seek out an IA who has a sound working knowledge of the fixed-income markets and who does a high percentage of business in fixed-income. Listen to the IA describe how he or she gets along with the desk; if it’s not mentioned, ask. The answer will reveal a lot. Human nature is important; traders are human and will respond favourably to professional treatment. Of course, trading desks are not perfect. One mistake or misunderstanding in an over-the-counter market may colour one’s opinion for a long time. However, a quick glance at the commission statistics will reveal in almost every case that the IAs who give the desk a hard time are in the lowest quartile of production. They waste too much time playing games with the desk and not enough time taking care of their clients. The top quartile of producers do not waste their time or the traders’ time through childish antics. Every retail organization where I have worked has these IAs. It is the same as with a lot of other businesses, where 10 percent of the IAs handle 90 percent of the business. You want to find one of those IAs. The other 90 percent complain and play games and just waste too much time on unimportant issues.

      Transparency, Transfer Prices, Markups, and Commissions

      Transparency: that which is transparent; a transparent object or medium

      Despite efforts to make the bond market more transparent, there is still a dearth of websites where bond prices may be obtained. With the explosion in internet usage, investors are now used to finding and using useful sites. The following three organizations offer free quotes and also offer a subscription service for greater access and visibility.

      CI Financial owns Perimeter CBID, which is a marketplace where several liquidity providers make available bids and offerings on a wide selection of fixed-income securities. Perimeter CBID operates a public website: www.canadianfixedincome.ca. Besides offering live markets on approximately 2,500 bonds, it also contains the previous day’s closing prices, actively traded corporates, and featured quotations. For $19.95 per month, investors may subscribe to Bondview, which offers a more in-depth view of CBID’s marketplace. CBID is not perfect, as it does not have all the liquidity providers, but it does present an accurate view of the retail bond market.

      The TMX owns PC Bond, purchased from Scotia Capital. It has the most complete data base for bond prices and performance in Canada. The programs and analytics are aimed squarely at institutional customers, being far too expensive for individual investors. However, their wonderful site, www.canadianbondindices.com, has a wealth of information suitable for individual investors. It offers the performance of the different sectors of the bond market on a daily and historical basis. It offers live prices on a variety of government and corporate bonds along with information as to volume traded. They do not offer a subscription service.

      CanPX is a joint venture of the primary dealers in Canada plus certain inter-dealer brokers. It provides a composite display of real-time bids and offerings on a variety of bonds. It is geared to the wholesale market, also, but their website offers hourly updates on the benchmark Government of Canada treasury bills and bonds. On a subscription basis, and only available through Gmarkets (www.gmarkets.ca) are two subscriptions: All governments for $125 per month and their corporate bonds for the same amount. I recommend the corporate bond subscription, as this is the most current list of corporate bonds available. In addition, GMarkets has their own product called Pilot, which is a comprehensive view of all aspects of the financial markets. It costs $485 per month but is well СКАЧАТЬ