Rich individuals who got their fingers burned in the financial crisis are moving back to basics in search of transparent, simple, low-cost products, shifting from private banks to smaller, independent wealth managers and boutiques to get them.
According to last year’s annual survey by Merrill Lynch and Capegemini, the number of wealthy individuals with investable assets of more than $1m fell nearly 15% in 2008, and their total wealth dropped by almost 20% to just below $33000bn. Losses were even higher for the super rich, for people with more than $30m, who saw a 25% fall.
The turmoil and fallout from the credit crisis has made people reassess their advisers and question whether wealth managers are looking for the best products for them or selecting high-cost ones that largely benefit the manager. Disillusionment with poor returns and high fees is driving a change of approach to investing. However, many banks seem to ignore the changing mood and what investors want.

The insurance industry is probably one of the most important resources serving industries in the United States. Today, the industry sector is experiencing some big changes due to Obama administration and congressional Democrats soured last summer.
In order to kill or significantly modify the major health reform bills moving through Congress, six of US’s biggest health insurers began quietly to pump big money, which is around $10 million to $20 million, into third-party television advertisement.
According to Peter R. Porrino, Global Director of Ernst & Young’s Insurance Industry Services, the life insurance companies would likely “continue to face a challenging environment” that required an improvement on many of their goals and objectives. Ernst & Young is now warning that insurers might change their business models and shift to a more “back-to-basics” approach to make up for decreased earnings and increased regulatory oversight. It was also suggested that life insurance companies shy away from investing non-traditional capital markets that could take years to recover from the current economic crisis, while also planning more adequately for financial issues that may arise in the future such ad liquidity crises.
So, people with life insurance policies should keep an eye on their long-term or short term insurance plans for 2010.

On the face of it, the for-profit higher education business in the US would seem to be an attractive investment sector. Earnings growth rates for big companies are in the 20-30% range, balance sheets are sound, and P/E ratios modest.
Yet the for-profit public companies are among the short-sellers’ favorite playthings. For a crowd of professional cynics, they get very passionate, even moralistic, in their hostility to the sector. Companies such as Corinthian Colleges, Appolo Group and DeVry Inc, are repeatedly slammed by the shorts’ sale of borrowed reprinted research. And, yes, there are serious political risks to the companies’ revenue and earnings growth. One of these risks, called “gainful employment” will become more evident in this coming week.
There has been headline after headline about for-profit schools’ high pressure sales techniques and high loss rates on federally guaranteed student loans. However, much of the reaction to those issues is already in the stock prices, and given how reported loan default rates can be managed by the schools, that near-term risk for most of the sector’s earnings, if not its reputation, may now be overestimated. Few schools are likely to be made ineligible for loan support due to excessive losses.
The for-profit industry has, essentially, accepted that the commission-driven hard sell to naïve students is not acceptable. Still, the Obama administration will force the industry to make further profound changes, mostly using regulatory authority under existing law. It also has its hand on the tap of the loan program, which provides the biggest part of the industry’s revenue.

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Adrian Brass’s performance record over the past two years seems to support the old assumption that stubbornness, or conviction, as it is often called, is an essential quality in fund management.
In 2008, the Fidelity manager underperformed the S&P 500 by 5% in the Luxembourg-based America fund he runs. He attributes this failure to his stockpicker bias towards the mid-cap universe. He says the liquidity crunch in November 2008 had an “exceptional, once-in-a-generation” impact on mid-cap stocks.
Mr. Brass stuck to his old hunting-ground and bought a lot of beaten-up stocks in homebuilders, logistics companies and semiconductor manufacturers at the end of the year. The strategy proved highly successful in 2009, and he ended up outperforming the index by 12 percentage points over the year, taking his total cumulative track record on the America fund into positive territory against the benchmark.
The bet has also been lucrative for investors in the UK-registered Fidelity American Special Situations fund, which Mr. Brass took charge of when the previous manager, Bob Haber, retired last March.
Mr. Brass is optimistic the rally will continue in the short term. He points out that corporate America has taken a bigger “knife to costs” than at any time in its history. While this has not always been welcomed among employees, savings of on average 8% of operating costs have had a dramatic impact on the bottom line, pushing earnings far beyond analysts’ forecasts.
Skeptics point out that cost-cutting is the kind of trick that only works once, but Mr Brass believes its effects will continue to be felt this year.
Combined with the re-emergence of sales growth as the country moves out of recession, he says cost control should continue to drive the US stock market back towards pre-crisis normality, in the immediate future, at least.
His longer-term outlook is less rosy, however, and he has been gradually rotating his portfolio out of the cyclical stocks that did well during the initial stages of the bounce into what he refers to as secular growth plays, stocks in sectors such as healthcare and IT services that can grow even as consumers and governments retrench.
Secular growth stocks, which performed less well last year, meet both of Mr. Brass’s two investment criteria. These are first that a stock has significant “valuation upside”, the potential to rise in price, and second that a clear catalyst exists for that upside to be realized. Mr. Brass thinks unexpectedly strong earnings will put a premium on the less racy growth companies this year.