Everyone’s investments have to go somewhere. You can leave your portfolio with one of the big, global financial institutions or you can pick the local adviser with a not-so-fancy storefront office behind the supermarket. What’s the better choice? The answer has very little to do with size or location.
The household names can and do make serious mistakes with other people’s money. Just think back to 2008. Highly paid, well-dressed portfolio “managers” with very nice offices managed to lose trillions — not millions, not billions — in supposedly safe, diversified mortgage-backed securities.
Wall Street blames the rating firms like Standard & Poor’s and Moody’s for not flagging potential problems. The agencies bear some of the blame, but not all of it. Portfolio managers are supposed to be skeptical and make their own independent judgments. If their “research” involves nothing more than trusting a bond’s AAA S&P rating, why the big bonuses? A monkey could do the job at a much lower cost.
Alas, the banks seem not to have learned any lessons. Just a year ago, JPMorgan Chase lost at least $2 billion because of spreadsheet errors. The firm’s London-based “Chief Investment Office” was supposed to oversee the bank’s excess reserves, carefully controlling risks. Yet according to the firm’s own internal review report, the CIO’s risk management software required cutting, pasting and entering critical numbers by hand. Not surprisingly, mistakes were made.
Ironically, JPMorgan was supposedly the “careful” bank, having glided through the 2008 crisis relatively unscathed. CEO Jamie Dimon was thought to be the man who kept his eye on the ball. In fact, Dimon and JPMorgan were as imperfect as the rest of us.
So, don’t presume that your money is safe simply because one of the megabanks holds it for you. They’re human, too. Conversely, don’t assume that the financial planner down the block is inferior because he wears jeans to work and doesn’t have slick brochures. He might be far more reliable than the megabanker is.
Your local guy is likely more accessible, too. Try reaching Jamie Dimon on the phone. When he comes on the line, ask about your portfolio’s risk level. Then ask about their expert oversight and cutting-edge technology.
Don’t be surprised if you’re put on hold. That is one thing the banks do very, very well.
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