It’s 2010. Do you know where your financial advisor is?

Last week TD Banknorth announced that they’re pulling out of the advice business. They called a meeting and told 100 employees that their advisory jobs were being eliminated. The CEO announced that the bank is dismantling its US-based advisor business. Smaller clients will be transferred to Ameritrade, the discount brokerage. Larger clients will get bank-run mutual funds and proprietary products.

Well I don’t think those clients are gonna stick around very long. A plain-vanilla approach may work fine in Canada, but in the U.S. clients want personal advice. When they get shuffled off to Buffalo, they have a way of stampeding.

This is just the latest chapter in the old story of banks buying investment services. During a boom, many banks figure the growth is permanent, and pay top dollar. When times get lean, they put on the squeeze. But this never works. For profitable clients to stick, they need to feel they’re getting their money’s worth. 1-800-FINANCE and proprietary limitations usually just don’t cut it.

The primary mistake seems to be thinking that customers can be swapped around. But it’s their money. And given a reason, they’ll just take it elsewhere.
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 Big Bank 101 [1:30m]: Play Now | Play in Popup | Download

Consider the implications of a recent pension-fund study:

Well-informed investors tended to put money into asset classes that had performed well in the recent past, like stocks in 1999 or government bonds in 2008. By analyzing 80 thousand different investment decisions over 20 years, the researchers showed that sophisticated, well-educated plan sponsors tended to act like consumers who switch mutual funds at the wrong time.

Wasn’t this supposed to be a problem with the 401(k)? Weren’t individuals going to be at risk because they didn’t have the education and resources of these managers? Individuals are supposed to be too naïve.

Only, not. One observation from the market’s recent volatility is that average people are surprisingly stubborn with their retirement accounts. Most people didn’t alter their asset mix, unlike their institutional cousins, who seemed to pick just the wrong time to change horses.

One lesson we see is that it’s not so hard to do as well, or better, than the guys in the suits. All that’s needed is patience and a little common sense.
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 What Goes Around Comes Around (Part 2) [1:30m]: Play Now | Play in Popup | Download

Many people look at pensions as the most rational of institutional investors. They don’t have to worry about taxes, and their investment goals are clearly defined. But recent research shows that they’re just as subject to investment fads as anyone else.

A study of pension plans reviewed 80,000 different investment decisions over a 23-year period. They found that when plan sponsors put new money to work they tend to buy what’s been hot recently and avoid what’s not.

Of course, this is exactly what the common sense tells us not to do. When an asset class is performing well, it is likely that the currently good news is reflected in the asset’s price. Similarly, when something has performed badly, the bad news is priced in.

But nothing good (or bad) lasts forever. When the news cycle turns, as it always does, those who invested new money in hot assets lost out. Think 1999: the new era for stocks. If you bought in then, you’re still looking for your money. But if you waited until after 9/11, when everyone was panicking, you’ve done pretty well: up 20%. A good investing rule of thumb seems to be, if it feels good, don’t do it.

Pensions are supposed to be the uber-rational institutional investors. But they’re just as likely to follow the fashion as anyone else. Every investor needs to learn how to lean into the wind and go against the flow.

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 What Goes Around Comes Around [1:33m]: Play Now | Play in Popup | Download

Does the Kindle finally have a real competitor?

When Apple unveiled its new iPad, my first thought was, I’m sure glad I put off buying a Kindle. It’s clear that the two devices are going head-to-head, with similar size, weight, and pricing. But the inevitable comparisons aren’t so obvious.

The iPad is color; the Kindle is black-and-while. The iPad runs over 100 thousand apps; the Kindle is a dedicated device. The iPad zooms and pans like an iPhone; the Kindle has a small keyboard. The iPad’s battery lasts about a day, the Kindle’s lasts a week or two.

In the end, a lot will depend on the business model. The Kindle is a dedicated eBook reader designed by and for people who love books. It’s sold exclusively by a bookseller who has been able to cut prices in order to increase the market share of electronic books. The iPad is a multi-functional tablet computer with a color touch-screen and thousands of third-party app developers. It’s sold by a computer-maker with a reputation for style and ease-of-use.

With two tech giants battling for a growing electronic publishing market, the stakes are significant. Whoever wins, consumers are going to have a lot of choices.
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 Tablet Wars [1:30m]: Play Now | Play in Popup | Download

Are we really in a race with China?

That’s what some people think. As Chinese companies purchase mineral rights around the world, there’s some concern that the US is falling behind in a race to reserve access to resources, produce products, and enjoy economic growth. If the Chinese monopolize manufacturing, the thinking goes, we’ll never get those jobs back.

But this assumes that Chinese growth comes at our expense. This kind of thinking dominated the western world when Adam Smith wrote The Wealth of Nations. Smith showed that the wealth of a country doesn’t lie in its access to raw materials or in its store of treasure, but in the productivity of its people.

That productivity doesn’t increase or decrease because someone else is competing. In fact, competition often encourages greater innovation and inventiveness, which benefits everyone. By “locking up” resources the Chinese are thinking in terms of command and control. That may be appropriate in wartime, but it doesn’t help a dynamic economy adapt to new situations.

Our thinking on competition is often colored by sports, where someone wins and someone loses. But in a free exchange, both parties can be better off. The key is seeing our challenges as a help, not a hindrance.
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 The New Mercantilists [1:31m]: Play Now | Play in Popup | Download

The big banks need to stop worrying and love the Treasury.

That’s what I thought as I reflected on the proposed new rules. New leverage fees, increased capital requirements, and regulations on trading seem negative at the outset, but they should actually be quite positive for JP Morgan and Wells Fargo.

The reason has to do with competition. JP, Wells, Citi and B of A have a combined asset size of about $6 trillion. They’re in a league of their own. The next largest bank has a paltry $300 billion in assets. Size matters. Some financial deals requires a large bank. And the government just made it a lot more expensive to become large.

So we can expect these four to be essentially the only game in town when it comes to mega-deals. And the new regulations and taxes will keep it so. The only thing is, when competition is limited, the remaining companies get comfortable with the status-quo.

Like Detroit in the ‘70s or OPEC in the ‘80s, an oligopoly doesn’t innovate. So when things change, their size becomes a handicap, not a help. For the moment, the big banks can depend on regulation to defend their market position. But only for the moment. Because change happens.
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 Dr. Strangebank [1:30m]: Play Now | Play in Popup | Download

Perhaps later this year, Secretary Geithner may be looking for work. I’ve followed his career for some time, and I have a suggestion for his next career.

One route might be that of the ancient Chinese sage and government public servant, Confucius. Like Geithner, Confucius was a career minister who was diligent in his studies. Like Geithner, he was unpopular as a bureaucrat. When Confucius was sacked from his government job he took up a new role as a teacher and writer. Tim Geithner might consider his example.

Consider the advantages: no speculation of an “insider deal” with Wall Street; invitations to conferences and seminars; and with the freedom of academia, Tim should have plenty of opportunities for telling his side of the story.

If the Treasury Secretary is fired in the next year, a job as a public intellectual—teaching and writing—could be a powerful second act. And a great advantage is that intellectuals, like government ministers, don’t have to worry about making a profit. Something else the Secretary has no experience with.
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 The Gentleman [1:30m]: Play Now | Play in Popup | Download