As an investor in a diversified portfolio of managed funds, property and cash, I’ll look back on 2008 as a year of high emotion, unusual market volatility, and future uncertainty. Yet in thinking through the cause and effect of financial market events over this year, I’ll also reflect on the common factors which are inevitably present in this, and previous market cycles.
For many people, a combination of fear and greed have worked together to undermine confidence and trust in the ability of markets to generate desired returns, and have caused longer term convictions concerning growth and opportunity to succumb to shorter-term worries about capital preservation and income. These concerns are very real, and directly impact on our perceptions of our financial well-being, with most investment portfolios bearing a negative (although in most cases unrealised) impact from this environment.
The unexpected and unfortunate case of Bernard Lawrence Madoff caught my attention in early December. If you’ve been following the news, you’ll recall that Mr Madoff has been charged with one count of securities fraud to which billions of dollars world-wide are suspected to be linked. While the unfortunate dimension to this case arises from its timing at the end of an uncertain and volatile year for financial markets and investors the world over, the unexpected element is that no-one was prepared to imagine that Mr Madoff, a scion of Wall Street for nearly 50 years, was capable of such an alleged crime.
Bernard Madoff was a former chairman of the NASDAQ stock exchange, and started the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960. He was also a prominent philanthropist through the Madoff Family Foundation, a $19 million private foundation which he managed along with his wife. In all respects Mr Madoff had the right credentials to develop substantial financial relationships – as one long time investor remarked “… returns were just amazing and we trusted this guy for decades.”
Financial relationships are necessarily predicated on trust and confidence – the absence of these factors result in relationships that are short-term, shallow, and ultimately unfulfilling for all parties involved. Trust and confidence are two core attributes that Spicers requires to be present in all its professional interactions – both in terms of our client relationships and also our day-to-day business activities. This is more than just a timely aspiration; it is the bottom-line of our exercising our fiduciary duty of care. In essence, we do not put our own interests as an advisory business, ahead of our clients’.
However, any strong and enduring financial relationship based on familiarity, mutual respect and time also needs to be supported by objective elements which are to some extent independent of the relationship itself.
Terms such as audit, governance and compliance are generally not the attributes we focus on first when considering a new financial relationship, but events of 2008 both in New Zealand and overseas (such as the Madoff collapse) have certainly brought them into sharper relief for many investors.
Every aspect of a Spicers client relationship is subject to these elements, both in terms of what is required of our business by statute, but also in terms of our own internal controls. While we are actively contributing to the drafting process of new regulations under the Financial Advisers Act, our own benchmark for professionalism is higher than what the new Act envisages. For example, we have undertaken an annual best practice audit of our entire advice network for many years, ensuring all securities we offer comply with relevant law, and that our advice models are consistently applied throughout our business; while all our client assets are held through an independent external trust company.
From a personal perspective, I look forward to 2009 with a great deal of trust and confidence. Trust in the integrity of our advisers, our advice proposition, and our advice solutions. And confidence in new market opportunities for investors, following an extremely demanding year.
Best wishes for the festive season.