Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
The travesty of Mayfair Platinum – and why there are more to come
Clearly, we should have seen it coming. A launch party full of B-grade celebrities on a pristine beach in a cyclone ravaged region, it had all the hallmarks of a disaster. This week saw the regulator taking action against the Mayfair Platinum Group, including its subsidiaries IPO Wealth, Mayfair 101, and M-Notes among others.
The group and its CEO Mr James Mawhinney were taken to the Federal Court this week as the complex web of investments, loans and some $180 million in investor funds continues to unravel. The Australian Financial Review quoted ASICs solicitors suggesting “there is a possibility that criminal proceedings may be commenced against Mr Mawhinney at some time in the future”.
It should have been clear when Mawhinney himself was quoted saying “it’s not Christopher Skase you’re talking with” at one of his conferences during 2019. This combined with the all-out media blitz which included costly full-page advertisements in the Financial Review, extensive marketing via the Switzer Group’s newsletter and Income Conference platform and various other channels should have been enough to alert investors and regulators alike. Unfortunately, it wasn’t, with the regulator, receivers and administrators now involved in salvaging the underlying assets for unitholders.
The purpose of this piece isn’t to criticize Mayfair Platinum or the regulator, that has been seemingly done to exhaustion, and will no doubt continue to be. Rather it highlights an important issue facing Australian investors and the financial advice industry in general.
Whilst the Royal Commission highlighted important issues and clear conflicts occurring within the industry, many of which will continue to exist post its full implementation, it has done the opposite in improving access to financial advice.
Despite seeking a better educated and ethically aware profession, the Royal Commission has seen some 16% of advisers leave the industry in 2020, down to 22,334 or around 2016 levels. The combination of reducing adviser numbers and higher compliance costs, including advice, administration and staff, has meant firms are now focusing on retaining only their most profitable clients, in some cases asking long-term clients to leave.
This was clearly not the intention, but an unfortunate side effect. With financial advice increasingly inaccessible investors are turning to Facebook groups, discussion websites and the like for advice, not unlike the Robin Hood trading phenomenon in the US.
One thing that financial advisers aren’t necessarily known for is their ‘bullshit’ filter or in more eloquent terms, ‘the advice they don’t get paid for’. One of the most underappreciated benefits enjoyed by those who have a financial adviser is their ability to offer a second opinion on the plethora of investment opportunities that are increasingly being sent directly by various means.
Most advisers will readily admit that some of their best advice has been to assist clients in avoiding high risk investments, rather than finding the best performing investments. You only need to navigate a few of the financial advisory websites to see many groups raising concerns about risky investments like Mayfair many years before the market did.
The coverage of investors putting their entire life savings are devasting, but clearly something any level of financial adviser would ever recommend.
The legislated requirement to ‘know your client’ and ‘best interests’ duty to ensure any advice is well considered and appropriate ensures clients of advisers of all kinds have the highest probability of navigating the wild west of investment markets.
