Is relationship vs. competence banking/good investor advise, now coming to an end?

Is "relationship banking", as opposed to competence, integrity & objective professional investor advise, stalling?

As a young business student at the University of Wisconsin in the 1970’s, I was made aware of an interesting publication called the “Wall Street Transcript” (WST). It was an A5 size large thick printed paper with perhaps 100 pages, or more. What struck me is how expensive it was, as I recall some US$500 or so a copy -and this is some 45 years ago! Its what got my attention as well that the Universities’ prominent new library back then which was a subscriber and so one could freely take a look while there (but not check it out). So I did.

The paper was full of fairly short concise notes by professionals, analysts, experts and specialists in their field which happen to have particular insights into a business/industry/company. It always gave experts name and prided itself on being unbiased and objective, while having a particular professional knowledge.  Mostly short comments with high quality proficient content. Never long esoteric economic analysis/paralysis on macroeconomics, or what the US FED might do or not etc.  No, only specific & shorter comments on so specific aspects very interesting -about a company or an upcoming industry.  I regularly looked especially on cold or rainy winter days and found some very specific investor ideas, well beyond the brokers.  

One such I remember, what a write-up of a particular Mutual Fund which had bankruptcy lawyers and finance experts in their field as their analysts/fund managers. This specialist fund would identify distressed securities (bonds and stocks) which however got over-sold often on misinformation, fear-mongering and plain lack of understanding on what was going on.  Like example were the bonds were sold off to 1/3 their  previous value on business failures even while the company owned very valuable land, far beyond stated book value.  This fund was successful in that narrow space, by accumulating exaggeratedly sold-off troubled financial assets which then in time realized the fund superior gains, overall.  Yet nowhere else could one know about this specialized fund and if one did, one assumed “oh no, not distressed assets for investment”.  Yet, if you understood, as this expert explained in the WST, it was an investor-jewel and helped pay for my education that time.  (Picture: David the individual vs. Goliath the mega banks.)

Another example was a Minnesota specialized company doing reverse osmosis water purification, a novelty at the time. Today its gone mainstream but back then was a new technology and few understood it.  But I so did because I read the short expert explanation there; simplified to read for investor purpose. Yes, I bought a few hundred dollars of it, doubled my money on it, and it paid for a Caribbean holiday. (I was a poor student back then).

These days we read/hear endure relentlessly almost at nauseam big analysis on inflation or how bad things are, what interest rates might do or the price of oil prognosis, gold etc.. Almost to no end.  . Even broker reports most often just analyze the last Q. earning reports and make some general comments on the numbers, perhaps with a graph. Then often getting it wrong, short-sited or worse, like biased due to a conflict of interest.  Not least, over-obsessed with large cap. stocks due to institutional demand on these and trader’s obsession around them.  Forgetting that often 2/3 of most all economies GDP is generated by smaller & mid sized companies; yet these are barely mentioned and even less so analyzed, of if so, by a  junior analyst with little experience.  Most of all this investor neglect and shortcoming, is never explained as its not in their interest.

Yet, so rarely on a company's deeper insights its success story and why -and what makes them special. Their products, new upcoming trends in their respecitve industries -or why a stock price sold off on misinformation. I have seen this shortcoming countless and regularly, especially here. 

The recent events in the Western banking industry has highlighted around this -and hopefully brought some attention to this long entrenched investor folly.  “Relationship banking” has at last been exposed some for what it is:  culturing good relations with customers at the expense of instead focusing on investor acumen & high integrity, along with at times expert added valuable insights to superior investor ideas -in a responsible way.  This is what many investors seek but not get from their banks – and too often brokers.

Along with their relationship mantra, Banks too often push investor into high commission structured products. But many are catching on -and the era is coming to an end? I think, or maybe just hope for the good of mankind.   High net worth investors should get it: go directly to financial markets.  By-passing banking institutions pumping their in-house dogma/products..which often have can have a conflict of interest* and are, must be, mega liquidity obsessed. Which they then brain wash clients must have the same criteria. A mistaken gross generalization to say the least. Liquidity is always relative to the individual investors in question, besides when a stock rocks up liquidity almost always soars. 

Use banks and brokers to check and source competitive investor financial instruments issued by listed companies, for you! Not hybrid bank/products geared towards them.

So is the Western induced banking crisis over for now? Investors seem to not think so, as on Friday they went looking for the next victim.  This time the

 wheel stopped in Germany, where Deutsche Bank shares fell by the most in three years and the cost of insuring its debt against default rose significantly.  (Picture: Is the banking tangled web of abusive practices at last coming undone?)

Over the years too many banks/ers increasingly pump what the senior mgt. want them to sell to clients, regardless of merit. ​Going against the very important long standing investor industry principle/mandate of „know your customer“.  This is shameful… as they charge a fee for objective advice.  This was/is(?) a long Swiss practice of so called retro-commissions, where Swiss bank charges an annual fee to give objective investor advise, only to then behind their backs collect a relative high or low commission all depending on what investor product they pumped clients into. I predict due to the CS failure, big changes are now coming to the Swiss banking industry there, which should never be confused to the otherwise overall great country of Switzerland.

Best Regards,

* Like so called "Retro commissions". A nasty Swiss banking practiced by many.