As promised here are some thoughts on some of the so-called research that is being done on finance companies.
I believe it is something that is absolutely imperative for the on-going success of the sector. It is so important that some years ago we looked at developing something in this area, but canned it when Grosvenor came out with its Bond Watch service.
The problems with research in this area is that it is very hard to do an apples-with-apples comparison (namely treat each company identically), secondly it is too easy for finance companies to hide things in their accounts (not saying that they would do this though).
There is one rating system, or should I say ranking system, that appears to have little integrity as the compilers don't have either an established or known track record in this area and their process is secret.
It appears to be subjective and relative and produces odd results.
For instance some finance companies are ranked more highly than established banks. I believe any adviser who uses this system is failing their clients, or at the least taking the easy way out.
Sticking with the research idea it is clear people don't understand the differences between the crowds that provide ratings/rankings.
One of the other rather bizarre things that tends to illustrate this point is Geneva Finance promoting its S&P rating.
Good on them with fronting up with the cash and going through the S&P process - it is probably the best system out there. On that count Geneva are winners.
But having said that they promote that they have B+ rating.
Now to most people a B+ is pretty good if it is the market they got for a university paper (well I always thought it was!) In the investment world though a B+ S&P rating is saying that it is sub-investment grade or junk.
Do the punters understand this? I doubt it.
Besides research there needs to be some decent education.
As promised here are some thoughts on some of the so-called research that is being done on finance companies.