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Why Is the Investor's Personal Rate of Return Missing on Financial Statements?
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IvySchmerken
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IvySchmerken,
User Rank: Author
7/22/2014 | 10:59:01 AM
Re: Rate of return should not be a mystery..
Thank you, Andre. This obviously illustrates a lack of transaprency tied to using complex products. Banks (Deustche Bank and Barclays) sold basket options to hedge funds like Renaissance Technlogies allowing them to do most of the trading but avoid billions in taxes.

From The Hill:

"Sen. Carl Levin (D-Mich.), one of the report's authors, said the accounts set up between hedge funds, such as Renaissance Technologies and banks such as Deutsche and Barclays, were "a series of fictions" that made it seem like the banks were trading a collection of stocks."

According to the article, the banks earned a $1 billion in fees administering the basket options transactions. Hedge funds booked $34 billion in profits.

The banks are quoted as saying this is legal and they cooperated with the investigation. Deutsche Bank stopped selling the product in 2010.

Unlike average investors, at least the hedge funds know their personal rate of return.

 
Andre Leonard
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Andre Leonard,
User Rank: Apprentice
7/22/2014 | 1:33:28 AM
Re: Rate of return should not be a mystery..
Ivy, you may find this article interesting when we begin to think of finanacial markets and transparency. (not)

 

http://thehill.com/business-a-lobbying/business-a-lobbying/212924-report-finance-firms-wrote-own-rules
IvySchmerken
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IvySchmerken,
User Rank: Author
7/21/2014 | 2:06:13 PM
Re: Rate of return should not be a mystery..
Andre, I agree. What bothers me more is that there's a hidden agenda is not providing the overall return figure. It's like if the investor wants the percentage figure, they'll need to contact a financial advisor and engage in a higher-fee relationship. Perhaps they don't want an advisor. Also, as you pointed out, they are not being given the information they need to assess whether the return is sufficent to meet their financial goals.

 
Andre Leonard
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Andre Leonard,
User Rank: Apprentice
7/21/2014 | 1:47:26 PM
Rate of return should not be a mystery..
Investors want to know whether their account has produced a sufficient return and whether they are hitting their goals. "Their trust and confidence is being compromised when that figure is a mystery," Whalen said in a press release announcing the survey results.

Ms. Whalen hits the nail squarly on the head. This lack of transparency is unacceptable.
IvySchmerken
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IvySchmerken,
User Rank: Author
7/21/2014 | 11:52:06 AM
Re: Very strange
Hidden fees and hidden returns - so much for transparency in financial services! The industry gives a lot of lip service to transparency but when it comes to creating statements that are in plain English and spelling out returns and fees, there is room for improvement.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
7/21/2014 | 11:41:54 AM
Re: Very strange
If the funds really want to start conversations with the financial advisors, clearly itemize and state what the fees are on each fund and what the fees are for (in plain English). I'm sure that will start many, many conversations with the advisors. It may not be the conversations that the FAs really want to have, but they will be conversations nonetheless. :)
IvySchmerken
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IvySchmerken,
User Rank: Author
7/21/2014 | 11:37:25 AM
Re: Very strange
Yes, indeed, it's very strange for financial service firms not to provide investors with the personal rate of return. That is what attracted me to this story. I experience the same frustration. Perhaps it's a math test. After all, the firms give us the dollar value of our accounts at the state of the period, and the dollar value at the end of the period, so they want us to whip out our calculators and figure it out ourselvves. Okay, perhaps that's fair. Why not make it easier for the customer. It seems like they are deliberately hiding this percentage so we don't know if our accounts earned or lost money. And as Dalbar's Whalen says, they want to create a reason to have a converstaion with a financial advisor.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
7/21/2014 | 6:15:41 AM
Very strange
It seems strange that the personal rate of return is not included in a statement. That is the first thing that I look at on my statements. I guess I'm in the lucky 25% of account holders who have the personal rate of return on my statement.


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