What we mean by NO CONFLICTS... ever!
Well, the problem in the investment business is that everyone makes money off you, the individual investor. Since everyone is, um, scalping you, the advice you receive from everyone - except 5i Research® - is inherently biased.
We are not saying professionals in the industry are cheats - although some clearly are - we are just saying that as soon as someone gets paid - by a company or client - then their advice is automatically suspect. We try and eliminate that, as we are paid only by our members, no one else.
Let’s look at some of the players in the investment industry and how their advice is conflicted.
Your advisor (broker or financial planner)
Your advisor makes money off of you in several ways. By commission, on new issues, and via trailer fees from mutual funds he/she sells to you. Often, your advisor makes the most money on new issues of structured products, where they can make 5% commission up front. To a broker, 5% commission can make ANYTHING look good, so they will often try and sell you something that may not be good for you. New issues are particularly bad, because your advisor legally can’t give you research on new issues that they are involved in. 5i Research fills that void, offering you unbiased opinions for members only.
Your fund manager
Your fund manager gets paid--by you. A lot. Does the manager spend anytime at work investigating personal stocks? What about that fund manager on TV? Is that stock he is talking about really sound good, or does he just want it to go up so his fund looks better? If a fund manager touts a stock, when are they allowed to sell it? Will they tell you they are selling? If a fund manager is performing poorly, will he increase the risk of a fund in order to try to ‘save’ his yearly bonus? What happens if that doesn’t work out? 5i Research does not trade in any stocks it mentions, ever. We have no conflicts.
An investment banker
We could fill a hundred pages on these guys. Investment bankers care about fees, period. They package things up and push them out to clients, and could care less whether they are good or bad investments. We only need to bring up the disaster of 2008 to make this point. Investment bankers packaged garbage loans and sold them, and almost sent the world economy into another depression because of it. Enough said about them.
Traders work for fund managers or sell-shops. Thus, they are loyal to their employers. They also might trade their own stocks, which you may or may not hear about. They are not the worst in terms of conflicts, but conflicts do exist with traders.
A newsletter writer
We like writers, except when they (a) trade in the names they write about; (b) get paid by companies in exchange for coverage; (c) earn warrants from companies for articles. (a)(b)(c) are all conflicts, obviously. Most newsletters will also want to connect you to their money-management division, because that is more profitable. Many stock newsletters are also tailored towards day traders. Day trading is not the focus of 5i Research. We focus on fundamental research instead of trying to time the market and make a quick killing (which typically only kills your net worth). We are not paid by companies, nor do we trade stocks under analysis - ever!
A stock analyst
Stock analysts are generally pretty smart people. But let’s face it, they are not working for you. Their 50-page glossy research report is designed to impress the companies they are following, so those companies give more business to their employer, usually a bank or brokerage company. Target prices and changes in recommendations are usually designed to generate commissions on trading activity. We have seen analysts change a target price from a SELL at $10 to a BUY at $300 in less than 16 months (Credit Suisse on Netflix). What value does that serve? Plus, analysts use generic terms so as to not offend companies. “Accumulate” “Market Perform” “Equal Weight”. How about just telling us if a company and/or management is good or bad? At 5i Research, our reports are short. They are in easy to understand terms so you can take away what you need to know, quickly. Nobody reads 50-page reports, anyway. If a company is lousy, we tell you. We don’t need to impress anyone. We don’t care if we rate a company “F”. That company doesn’t pay us, so who cares if they don’t like us? We work for our members only.
A Public relations or investor relations firm
These companies are paid, sometimes tens of thousands a month, by public companies who want them to spread the word of their company and drive their stock up. While they do provide a service, obviously if you are paid this much you might present a company only in the best light possible. In our years as a Portfolio Manager, we have learned to be careful with PR and IR firms, as their conflict is just too great. All the companies they represent sound like the next greatest thing, which we know from experience is not true.
Almost every financial website out there (except ours!) will either want to connect you with someone who will charge you more fees, seek to eventually manage your money; seek to sell you some other service; seek to promote a company, or seek to somehow get more of your money or promote a stock. 5i Research’s site will only - ever - analyze stocks and new issues. We do not want to manage your money. We do not own positions in securities we follow. We do not recommend financial advisors. We do not promote companies. We work for you in isolation.
A bond-rating agency
Having worked at a rating agency, we know all about conficts. To get a bond rating, a company PAYS the bond rating agency. Could there be a bigger, clearer conflict? After the financial crisis of 2008, the rating agencies were taken to task by the government on the issue of conflict, but their basic model of getting paid by issuers still remains the same as before.
A CEO of a company
How can a CEO have a conflict, you ask? Well, quite easily. If the CEO owns shares or options, he or she has a clear incentive to promote their own stock. Now, we want CEOs to own stock in their own company, don’t get us wrong. But, as soon as they do, EVERYTHING they say has to be treated carefully, because they get rich if their stock rises. We have seen too many CEOs of companies outright lie to promote their own stock positions to know this is a clear, defined and dangerous conflict of interest.
What do fees really cost you?
This graph shows the compounded effect of paying 2.5% management fees on your money over 20 years.