Nov
8
Book Summary: “The Courage To Be Rich” by Suze Osman
November 8, 2009 | Leave a Comment
This is a book summary I have written for “The Courage To Be Rich”, by Suze Osman
Part 1: Acts Of Courage
Chapter 1. The Courage To Look Within
The way we think and feel about money can affect how much we have, some thought patterns can be internal obstacles. Fear of investment, shame of having debts, and anger at not having what we want are common toxic emotions people have with money. We are not getting rich by feeling afraid, ashamed or angry. Forgive the past & present. Replace thoughts of powerlessness to thoughts of “I can”.
Chapter 2. The Courage To Have More & Be More
Thoughts of ‘I can’t’ are thoughts of poverty. Such thoughts of defeat, if not corrected, can pass down for generations. Think of thoughts as actors in our mind, we are the director, we are the one in control of where they’ll be and when they speak. We must use words of abundance, wealth and bounty.
Words of poverty:
I can’t
I’ll never
I don’t know how
I wish I had
Words of power:
I can
I always
I am learning how
I will have
Chapter 3. The Courage to Make Room for More Money
Unopened bills, statements are financial clutters. Bank & credit card statements that you don’t understand are costing us and blocking us.
Part 2: The Value Of Money
Chapter 4. The Courage to Value Money
Law of money: People First. Then Money. Then Things. Careless spending on luxury designer items, and items that are seldom used could turn into substantial savings.
Chapter 5. Defining Value & Worth
Our self worth must rise along with our net worth.
Law of money: When you undervalue what you do, the world will undervalue who you are. Ask more of yourself and of others. We should not feel guilty about wanting more money, the same way we shouldn’t feel guilty for loving our family.
Chapter 6. The Courage to Face The Unknown
When we are in credit card debt, our self worth are in a kind of free fall. Having excessive credit card debt often means that we are living a lie, owning things we can’t afford and being dishonest about our future. Overspending to satisfy desire for traveling, eating out and entertainment are the most dishonorable kind of debt.
We can get free credit report within 30 days if we have been denied credit. It is recommended that we review this report regularly to check for incorrect and out of date information. Apply for reinvestigation if needed.
http://www.equifax.com/
http://www.experian.com
http://www.tuc.com
Remember you are more than your negative balance. The less self esteem we have, the more debt we have. Face your credit card debit problem by telling others about it. We must pay more than minimum.
Chapter 7. Rich Thoughts
Rich thoughts about children: Be forthright about money to children, the sooner we have a saving or investment plan that pay for college, the less anxious we and our children are.
Rich thoughts about cars: Buy a reliable model, pay it off in 5 years, and own it for 8-10 years.
Rich thoughts about taxes: Learn to use tax software or hire a tax preparer.
Rich thoughts about tomorrow, today: Scale back on luxuries can free up a lot of money to save.
Part 3: For Love And Money
Chapter 8. The Courage to Open Your Heart, The Courage to Open Your Hands
Couples need to assess how compatible they are in terms of:
Investment style: Aggressive or conservative?
Bills: Who will pay what?
Prenuptial agreement: Do you want one?
Child rearing: Private schools or public schools?
Any past issues such as debts?
We are, in most cases, not liable for debts incurred by our spouses before marriage. But we are liable for debts incurred after our marriage even if it’s only in our spouse’s name. Even when your spouse, or ex-spouse files for bankruptcy, you may still be liable.
Chapter 9. The Business of Love
Do the unconventional: Plan for what-ifs while you are still totally in love. Draw up prenuptial agreements or cohabitation / property agreement. Even we may not have assets right now, we may one day have assets that’s why we need an agreement.
Sep
21
What do traders and trade support pros do?
September 21, 2009 | Leave a Comment
Many successful investment bankers know little about investment banking when they first apply for the jobs. The training programs offered by the banks are often enough to introduce newbies to the complex world of finance and transform them into professionals.
Despite the fact that candidates often know little about the inner working of investment banks, many do know that front office roles, such as sales and trading, are generally more lucrative than middle office roles such as client service, trade support and compliance.
The financial tsunami of 2008 impacted the well heeled financial community in more ways than previously imagined. Firstly, many junior and senior financiers alike lost their jobs; secondly, related industries such as financial publications and high end entertainment establishments see dramatic decrease in sales from their clients. The recent close down of the industry magazine Traders Monthly is a perfect example of how the turmoil has rippled to other sectors and industries.
What do traders do
Traders belong to the front office – the revenue generating part of the business. Their daily responsibilities include:
- Create and maintain pricing models
- Make markets
- Trade for commission (flow traders) or trade for profit (prop traders)
- Search for new trading strategy
- Liaise with institutional clients
- Create task automation tools, therefore, Excel, Visual Basic and C++ programming skills are required
Traders usually are required to generate excellent return on capital, which is above 20%. Traders have P&L responsibility for their book. In some rare cases, traders may have to write research reports, although this is not a common expectation.
What do trade support professionals do
Trade support professionals, sitting in the middle office, have the following responsibilities
- Book trades
- Ensure compliance by keeping complete record of trades, margin lending etc
- Document any portfolio restrictions, which varies by client
- Communicate with clients
- Escalate any unresolved trade breaks and other urgent issues to traders
Sep
13
Book Summary: “Harvard Business Review on Bringing Your Whole Self to Work” (chapter 1-3)
September 13, 2009 | 1 Comment
This is a book summary I have written, by chapter, of an excellent peak performance book “Harvard Business Review on Bringing Your Whole Self to Work”.
Chapter 1: Why smart people underperform
Attention deficit trait is epidemic in organizations. Unlike ADD, ADT springs entirely from environmental factors, such as overloading information & orders. Frontal lobe is in charge of complex planning, fluid learning, decision making and uniquely human managerial tasks. Lower region of the brain is in charge of survival and it is primitive, it fires signals of anger, panic and irritability. When under constant stress, the lower region takes control, intelligent dims, impulse, anger and black-and-white thinking takes over. Ways to manage ADT includes:
- Have adequate sleep
- Eat complex carbohydrates (whole grains, vegetables & fruits) and Omega-3 fatty acid supplements
- Set aside a “think time” that is free from emails, calls and other distractions
Chapter 2: The human moment at work
The lack of human contact can result in isolation. Human moment has two prerequisites: (1) Physical Presence; (2) Emotional & Intellectual Attention. Regular human moments can stimulate creative thinking, team cohesiveness. The lack of human moment in electronic communications can lead to oversensitivity, self doubt, toxic paranoia, ambiguity and boorishness. Anecdotal evidence also favors the need for human moments: scientists hypothesize that face to face contact stimulates two important transmitters: dopamine (enhances attention & pleasure) and serotonin (reduces fear).
Chapter 3: The making of corporate athletes
Ways to build capacity:
Physical capacity: Exercise, manage glucose level by eating small meals several times a day
Emotional capacity: Music can have a huge physiological and emotional effect on human. Conciously create the look on the outside that you want to feel inside. Develop close relationships with others also enhance productivity at work.
Mental capacity: Visualization.
Spiritual capacity: Find deep purpose.
Aug
13
Investing in China Series: The Basics
August 13, 2009 | Leave a Comment
If you are thinking about investing in China, you are definitely not alone. Legendary investor Jim Rogers has been investing in the Chinese stock market since 1986, in his book “A Bull in China: Investing Profitably In The World’s Greatest Market”, he compared the modern Chinese stock market to America in the late 1800s, where “it was a time of unbridled expansion and enterprise and the formation of key industries”. While many hedge funds and institutional investors agree that the prospect of Chinese stocks looks very promising, the Chinese equity market is different to other markets in many ways. Before you jump into investing your money into one of the world’s fastest-growing stock market, make sure you educate yourself on the fundamentals first. Today I am going to introduce the classification of Chinese shares.
3 types of stocks: A-shares, B-shares and H-shares
A-shares are shares that are only available to Chinese citizens (with exceptions, see below) and are settled in Chinese yuan (reminbi). A-shares are traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. From 2002 onwards, a small amount of foreign investors are allowed to trade A-shares through the Qualified Foreign Institutional Investors Scheme. There is a quota of US$30 billion. Settlement is T+1.
B-shares are shares that are exclusively available to foreign investors and are settled in foreign currencies. Settlement is T+3.
H-share are issued by Chinese companies listed in Hong Kong, the transactions are done on the Hong Kong Stocks Exchange. Many investors who want to invest Chinese companies trade H-shares. H-shares is by far much more popular than B-shares.
IPO and the exchanges in China
The China Securities Regulatory Commission maintains statistics on IPOs in the 3 legal stock exchanges (Hong Kong, Shanghai and Shenzhen). However the website is only updated irregularly and the last update was done over a year ago in 2008. It seems to be the only official information available on the internet on this matter.
Shanghai Stock Exchange
http://www.sse.com.cn
Zhengzhou Commodity Exchange
http://english.czce.com.cn/Default.aspx
China Securities Regulatory Commission (Governing body of the Chinese world)
http://www.csrc.gov.cn
Hong Kong Stock Exchange
http://www.hkex.com.hk
Jul
26
Private Banking Trends 2010
July 26, 2009 | Leave a Comment
2009 is a year to remember for many private banking professionals. Hedge funds failed, Bernard Madoff convicted, clients withdrew assets from private banks. The global financial crisis has fundamentally changed how the HNWI clients invest and the wealth management business itself. As part of an orginal research, we study financial data and key events in 2009 to identify the emerging trends in private banking 2010. They include:
Trend 1: Growing Chinese market
Many “new money” acquire their wealth through IPO. According to Ernst & Young’s recently published Global IPO Update, Brazil and China accounted for two-thirds of global capital raised in Q2 2009. This not only means that the economy is growing rapidly in these countries, more importantly it shows that there is a growing demand for private banking and wealth management services in the region.
Warren Buffet, who has successfully navigated through many market cycles, predicted that China’s growth will outstrip US. While this may be good news for private banks who have a strong APAC presence, wealth management professionals should understand that the Chinese market is not easy to penetrate. First of all, client advisors need to be fluent in Mandarin and have local connections. Secondly, guanxi (relationships) still plays an extremely important role in the modern Chinese business community, private bankers without access to key relationship brokers as references will find it very difficult to convince Chinese HNWIs to open accounts. Private banks that hire locals will have a definite advantage over expats trying to cover Chinese clients.
Private bankers should also note that the growth of the Chinese market is not uniform across all Chinese cities. While Beijing, Shanghai and Shenzhen will spearhead growth, Hong Kong, on the other hand, will likely to have a tough 2010. Hong Kong actually suffered a huge reduction in HNWIs of 61% in 2009, because of the near 50% drop in market capitalization.
Trend 2: Rising compliance cost and lower profit margin
The Bernard Madoff $65 billion Ponzi scheme, among other scams exposed in 2009, alerted regulators in many countries. In order to crack down on false trading activities and tax evasions, governments worldwide demand more oversight of banking operations. This affects not only the investment banking business but also the private banking side. The account opening process, KYC and offshore banking activities are under tighter scrutiny than ever before. As a direct result, banks have to spend more money on compliance and risk management. With advocates such as Alan Greenspan proposing higher capital ratio for banks, the cost of doing business is bound to increase. With a stagnant market in most countries it is almost impossible to increase fees and banks are likely to have to absorb the rising cost. This means lower margin for private banks and flat compensation for bankers.
Trend 3: Diversifying clientele
As the society progresses and becomes more diversified, so is the wealth management market. Customers today are more fragmented than ever before, and banks which are quick to respond benefit from the changing demographic. Islamic private banking, for example, is gaining momentum. HSBC Amanah is promoting Shariah compliant portfolios. In June 09, Morgan Stanley Wealth Management hosted a wealth planning seminar for same sex couples in Beverly Hills. It is likely that other private banks will become more aggressive in targeting demographic segments that have previously been ignored.
Trend 4: Rebuilding client trust will remain a top priority for bankers
The 2009 Capgemini Wealth Report found that more than a quarter of HNWI clients withdrew assets from their firms due to a loss of trust and confidence. There are several high profile client-advisor fallouts in the past 6 months, such as Singaporean tycoon Oei Hong Leong suing Citigroup private bank for a $684 million loss, and US investor Andrea Barron suing UBP for negligence. In Hong Kong, entrepreneur Joyce Tsang (founder of listed beauty salon group Modern Beauty) sued Goldman Sachs advisor for her $2 million loss, which she claimed the investment was made without her consent. The Securities and Futures Commission in Hong Kong later barred the ex-Goldman advisor from the financial services industry for 2 years. All these lawsuits inevitably make people question the ethical standard of private banking professionals.
HNWI clients are likely to remain extremely skeptical of private bankers and advisors in the midst of financial turmoil. How to rebuild trust remains a top priority for private bankers. Proper disclosure of conflicts of interests can address some concerns. True private bankers are professionals who should act like doctors, who can be relied on to give impartial expert advice. Private bankers who can instill confidence are likely to remain top performers.
Trend 5: E-trading and online customer service will become key differentiators
While some of HNWIs prefer to deal with their advisors face to face and seldom use email, it is easy to see why the “new money” group, often in their mid thirties and forties, are increasingly turning to online self service. Many mid tier Swiss based private banking firms, especially boutiques, are not up to speed in this area. Their e-trading capabilities and the online statement functionalities can not be compared to more established private banks. It is logical to predict that private banks that provide comprehensive and user friendly online services will continue to stand out, while those that are ill-equipped will find themselves having difficulty to attract and retain clients.
Trend 6: Singapore will remain a key player in the private banking industry
Singapore is known as “Switzerland of the East”. There are many reasons why it will stay this way for at least another three years. On top of the excellent international reputation and the $300 billion private banking assets the region currently manages, the Singaporean government is aggressive in making the country more attractive to private banks and HNWIs worldwide. Singapore officials are planning to amend the Income Tax Act, which is likely to help the country to make Organisation for Economic Cooperation and Development’s “white list”, further establishing itself as Asia’s private banking stronghold.
Jul
11
Private banking due diligence checklist
July 11, 2009 | Leave a Comment
Before you open an account with an advisor, make sure you conduct your own due diligence and know the answers to the key questions on topics such as conflicts of interests and fees. This special due diligence checklist has been created to help you understand your risk.
Private Banking Due Diligence Checklist (pdf)
Jul
7
How the private banking industry is changing
July 7, 2009 | Leave a Comment
For most investors and financial professionals, 2009 is a year to remember. The collapse of Lehman brothers, the conviction of Michael Madoff, the massive layoff within the industry and the dramatic drop in equity value make 2009 a year to remember, for all the wrong reasons.
Two Harvard Business School professors, Michael Porter and Jan Rivkin, wrote an excellent note on industry transformation. This groundbreaking piece of note first published in 2002 touched on the triggers of industry transformation, 3 factors were identified in the process: Technological advancement, Changing customer needs and Changes in regulations. If we look closely we will see that all these forces are reshaping the private banking industries right now.
Changes in regulation
The bailouts / TARP funds offered by the US government require banks to be more prudent and transparent. In the next 5 to 10 years, I foresee that governments will play a bigger role in regulating private banking and the financial industry in general. The massive losses some private banking clients suffered during the 08 financial tsunami will trigger a series of lawsuits that result in stricter rules on how private bankers can do business. This will post important impact on the profit margin (more money goes to compliance and KYC) and client acquisition rate (customers are more concerned about the conflict of interest).
Changes in customer taste
“Old money” in Europe often focus on wealth preservation. Their investment goal tend to be preserving family wealth over time instead of meeting aggressive targets. Clients in other parts of the world may have a slightly different investment preference.
There is significant growth in the BRIC area. For the past 20 years, the emerging markets in Asia, Russia and Latin America produced many “new money” clients who are first or second generation high net worth individuals. These clients have different risk preference and expectations. Some of these clients are more interested in using complex derivative products such as options, futures or interest rate swaps, in order to earn a higher potential return. Instead of just investing in bonds and equity, they may want to put their money in real estate or antiques. Banks that can offer a wide selection of products will ultimately outperform those that can only offer basic asset classes.
Changes in technology
With the advancement in e-trading capabilities, many savvy investors can place stock orders at home. While some of them still prefer to work with private bankers and have them to place orders, some are already seeing private bankers as redundant middlemen. Compared to placing orders directly online, calling a private banker to place orders is more expensive. (Clients have to pay annual account management fees plus transaction fees for each trade). While private banking services will continue to reinvent itself and remain relevant, online trading will inevitably take some of the PB clients away.
Jul
6
Summary: “The relationship edge: the key to strategic influence and selling success” by Jerry Acuff
July 6, 2009 | Leave a Comment
This is a book summary I have written for “The relationship edge: the key to strategic influence and selling success” by Jerry Acuff.
Selling success comes from meaningful dialog and meaningful dialog in turn comes from trust. Good relationship itself doesn’t sell, people still have to explain benefits and features in order to close a deal. In order to facilitate effective selling, we need to think well of others whenever possible. 20 tested and true ice breaker questions that warm up all selling are:
- What do you do when you are not working?
- Where did you go to school? (and how did you choose it)?
- Where did you grow up and what was it like growing up there?
- What was your high school like?
- What do you enjoy reading when you have the time?
- How did you decide to do [whatever it is he or she is doing] for a living?
- Tell me something about your family
- Where is your favorite place for a vacation?
- What kind of vacation would you like to take?
- What community associations, if any, do you have time to be involved with?
- What sports, if any, do you enjoy participating in?
- What sports do you enjoy watching?
- If you could have tickets for any events, what could it be?
- How did you decide to settle in this area?
- Tell me something about yourself that would surprise me.
- What things would you want to do more, if you have time for?
- What challenges in your work might I, or my company, to be able to help you with?
- What is the most frustrating thing about being in your business these days?
- In your opinion, what two or three qualities make a top notch sales representative?
- If all work paid the same and you could go around again, what would you do?
Jun
23
Non profits are increasingly turning to professional wealth managers
June 23, 2009 | Leave a Comment
Recently I read an article on Wall Street Journal about the trend of NGOs turning to professional wealth managers for financial help. The article cited that the total foundation assets in the US dropped about 22%, or almost $150 billion, in 2008. There are many benefits for charity boards to use professional financial advisory services, they include due diligence, risk management and diversification.
Due Diligence
Most charity board members are themselves successful entrepreneurs, their time is scarce and they are too busy to perform the due diligence required for investment decisions. Many of the non-profit staff are qualified in many areas but are not finance experts. The responsibility of asset allocation often falls on several over-committed board members and a CFO who doesn’t know much about portfolio management. Besides the time factor, most non-profit CFOs have not been educated properly on how to carry out due diligence when it comes to choosing investment vehicles. The lack of expertise in finance is one reason why over 140 foundations lost money in the Madoff scandal.
Risk Management
One reason why many charitable organizations choose to manage the money themselves and rely on in-house resources is cost. They believe that the asset management fees charged by wealth advisors are not justified. Many overlook an important issue here: the opportunity cost of NOT having a professional advisor is very high. Without proper knowledge of the equity and fixed income markets, non-profit CFOs often have difficulty quantifying the risk they are taking, and the expected return, let alone time valued of money and other more advanced concepts. The best they can get without a qualified advisor is a ballpark figure. Only with proper mathematical models and solid knowledge of the market one can understand clearly where the organization is standing financially.
Asset Allocation & Diversification
Currently many charities are still using the same investment vehicles they have been using for the past 30 years: Bonds and equities. Over the past 30 years many new investment options become available, if used properly, swaps, options, futures and alternative investments can help an organization to hedge market risks. A good wealth advisor can introduce you to a wide array of investment products that suit your organization’s investment philosophy, while limiting your risk exposure.
Jun
22
Book review: “Global Private Banking and Wealth Management” by David Maude
June 22, 2009 | 1 Comment
Excellent advisors can help you draft complex strategies to protect your assets, manage your cashflows and provide high value strategic advice. Mediocre advisors on the other hand only want your commissions and often encourage you to take positions that don’t serve you any good.
Because of how “secretive” the private banking industry is, it is not easy for outsiders to understand what goes on behind the scene: what the industry really looks like, who are the clients, how banks charge fees etc. Many clients come across private banking for the first time when they are approached by a salesperson working on behalf of the banks and clients often have very limited reliable information besides the marketing materials published by banks themselves. Reliable third party information is hard to come by.
If you want to know how the private banking world operates, I highly recommend “Global Private Banking and Wealth Management” by David Maude. I have read extensively on the subject and Maude’s book is one of the best private banking books available in the market. A special feature makes this book a must-have for wealth management professionals and private banking clients alike: the number of insider information and charts that belong to McKinsey – where Maude once worked. You may be able to get a ballpark figure of the industry, but Maude’s book provides a lot of quantitative analysis. These types of information is only available for consulting clients who spend at least hundreds of thousands of dollars.
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