Investment Articles

Portfolio optimizer software is a tool used by investment professionals to test the risk and return characteristics of their portfolios on historical data. This article discusses the benefits and myths of these types of tools on real world investment returns.

Mutual fund managers, hedge fund managers, and wealth managers are all judged on the real performance of their managed portfolios over time. This is typically compared to a major benchmark such as the S&P500, MSCI World Index, High Yield Bond Index, or other well-known diversified measure.

The goal is to outperform the benchmark consistently. This can be done by generating the same returns with less risk, greater returns with more risk, or more returns with less risk. The optimum theoretical investment portfolio lies on something called the Efficient Frontier. So how do investment managers build a portfolio that performs at its best?

After picking the best investments, a fund manager will turn to portfolio optimizer software to determine the optimum weightings for each stock, bond, or ETF. Plugging in the list of possible investments and running multiple simulations will output an estimated optimum portfolio based on the historical correlations, volatilities, and returns of each one. The primary benefit of this process is to understand if the portfolio has sufficient diversification. It is easy to accidentally create a portfolio which is highly correlated and vulnerable to market shocks and this simulation analysis is helpful in reducing this danger.

While the process itself is informative, beware that it’s not perfect and can lead to some erroneous assumptions. It’s based on historical data only and tomorrow may not be the same as the past, so today’s portfolio will not be the optimum one for the future. It assumes no transaction costs which is clearly not the case. It assumes perfect information is available in the market which may or may not be true. Finally, it is based on the belief that a major market index is the most appropriate benchmark when many investors may have other drivers such as tax rates, hedging, or a specific investment time horizon.

This short overview of portfolio optimizer software and its common usage should help you determine if this type of tool is right for you.

If you are looking for portfolio optimizer software you can get started with a low price yet sophisticated model right here: http://www.financial-edu.com/portfolio-optimization.php

While meeting with a marketing agency last week I was asked to explain what was different about the way we invest. What is our ‘key point of difference’ compared to, say, your average managed fund. By far the most significant difference is that we don’t use a model portfolio. In this way we also differentiate ourselves from the majority of IMA’s and SMAs (Individually and separately managed accounts) because they also all use model portfolios.

Saying goodbye to the model portfolio

You don’t have to be a fund manager to know that markets go up and down. Yet it seems that many of the supposedly ’smart’ investment managers writing mandates for managed funds have forgotten this key piece of information.

Cash is king, and the key to out-performance

If you invest in a managed fund, and it is mandated to hold X percentage in one sector, and Y percentage in another, and maximum 15% cash, what happens when the whole market falls? What happens if the whole market falls like it did in the GFC? Even the ‘fund manager of the year’ won’t be able to save your investment from declining. Why? Because there is nothing he or she can do, he can’t move the entire portfolio to cash because more than likely he can’t hold more than 15% cash under his mandate and because even if he wanted to the portfolio is too large to liquidate. (the fund manager of the year manages 4.1 billion dollars)

Saying goodbye to the model portfolio allows us to do what other fund managers can’t. Hold 100% cash if we choose, and move in an out of stocks based on opportunities that present themselves. This leads directly to our next point.

The (trading) opportunity of a lifetime comes around twice a week

In the stock market it might actually be more than twice a week if you know where to look. This is why we based our investment ‘model’ on a cash portfolio. All you need to be able to do is be patient enough to wait for the opportunities to come to you, and I assure you, this is harder than is sounds. But if you can be patient and wait for the market to deliver you an opportunity to buy a great company at a great price (typically when no one else wants it) you have greatly increased your chances of profiting from your investment.

Buying when other are selling is tough

By far the hardest part of our trading strategy is buying quality stocks when they are down. This means buying them when other people are selling them. At times this can be a gut wrenching experience.

Understanding the investment and doing your research is key

One of the biggest keys to our success in the market is having a solid understanding of the businesses we invest in by conducting comprehensive research into them before making an investment. The most important function of the research (besides understanding what we are buying) is it helps us be confident enough to buy these companies when they are on sale.

William Shaw is a boutique investment manager which specialises in offering Managed Accounts to private individuals, Self Managed Super Funds and financial planners in Australia. Our Managed Accounts service has outperformed the ASX 200 by 23.32%. For more information, visit Managed Funds

What is “Alpha”?

In investment terminology, “alpha” refers to the level of out performance of a portfolio relative to an appropriate benchmark. Of course, everyone would like to achieve returns in excess of their benchmark. But you’re advised to have a good grasp of the cost and chance of achieving alpha before you decide to chase it.

There are two broad approaches to investment management: active and passive. An active approach seeks to add value, or alpha, by over weighting exposure to securities that are believed to be undervalued and under weighting those believed to be overvalued. The obvious aim is to perform better than a strategy that simply holds all securities according to their market weight (i.e. benchmark portfolio).

Passive investment managers believe that it’s highly improbable that you’ll be able to reliably outperform the benchmark over the long term (without taking more risk). Their focus is therefore not on beating the benchmark but replicating it as cheaply as possible. Their value add is in providing a diversified portfolio with minimal trading and management costs.

Shouldn’t everyone go for “Alpha”?

If you knew that your additional return would more than offset your additional costs, it would always make sense to try to outperform your relevant investment benchmark. However, the difficulty is that while you know the quest for alpha will increase your costs you don’t know for certain that your return will increase. You could end up with the additional costs and worse than benchmark performance (i.e. negative alpha).

In fact, it’s impossible for all active investors to achieve positive alpha. Let’s have a look at an example that illustrates this for the two investment approaches described above.

The small, mythical country of Tinyville has only 4 companies on its stock exchange: Beta, Delta, Gamma and Omega. The values of the companies and their market weightings are shown below for “yesterday” and “today”:

Companies
Passive Investors
Active Investors

Pink
Orange
Blue
White
Black
Brown
Total

Beta Ltd
$14,000
$10,000
$30,000
$25,000
$15,000
$6,000
$100,000

Delta Ltd
$9,800
$7,000
$25,000
$10,200
$8,000
$10,000
$70,000

Gamma Ltd
$7,000
$5,000
$15,000
$7,000
$16,000
$0
$50,000

Omega Ltd
$4,200
$3,000
$10,000
$0
$6,000
$6,800
$30,000

Total
$35,000
$25,000
$80,000
$42,200
$45,000
$22,800
$250,000

Also, there are only six investors in Tinyville: Mr Blue, Mr White, Mr Black, Mr Brown, Mr Pink and Mr Orange. Pink and Orange are passive investors and, therefore, their portfolios will reflect market weightings. The other four are active investors, so their portfolios will differ from the market weightings.

Points to note include:

The total value of the portfolios for all six investors equals (and must always equal) the value of the overall market;

The weighted average return of all investors equals (and must always equal) the market’s total return;

The passive investors earned the market’s return;

The overall weighted average return of the active investors equals the market’s return; and

Black’s outperformance is offset by the underperformance of the other three active investors.

The “Alpha” bet may not be the smartest

The findings from our mythical market apply to real share markets. An active approach is not synonymous with outperformance. In fact, any outperformance by some active investors must be matched by the underperformance of all other active investors.

Many active investors are of the opinion that it’s nave not to try and “beat the market”. They either don’t understand that active management is a zero sum game or, unrealistically, all believe they are better than average investors!

And let’s not forget the certain losses you will incur as a result of the additional costs of being an active investor. Generally, compared with passive investment, they include higher transaction and management costs, early crystallisation of capital gains tax and reduced diversification benefits.

What level of outperformance is required to justify this ongoing drag? Over a 30 year period of share market investment, our estimate is that you would have to generate an additional (risk-adjusted) return of at least 2% p.a. just to breakeven with a passive investment approach. You need to be pretty confident (perhaps, overconfident) of your investment abilities to take this “Alpha” bet!

Wealth Foundations is an independently owned personal financial advisory firm that offers wealth management and strategic financial planning services. For more information, visit Wealth Advisers.

Many wealth managers approach investors positioning themselves as “trusted advisors”. Can you develop this type of relationship with someone who is compensated for selling product, or should you seek out a wealth manager who operates without conflicts of interest between the firm and the client? As more independent advisors arise, this question will present itself more frequently to investors.

One of the biggest complaints investors have is that they feel they are being “steered” towards specific investments by their advisor. Frequently, these products are manufactured and/or managed by the firm that employs the relationship manager. They can take the form of mutual funds, managed accounts, or partnerships. This is true for brokerage firms, investment banks, and trust banks. In many instances, the compensation of the “trusted advisor” is largely impacted by how much proprietary product he or she can sell. With that type of motivation in place, it is fair for investors to ask if their best interests are being placed first.

Some large financial services firms responded to investor’s lack of trust by creating a “platform” that includes a limited number of outside advisors side by side with their own offerings. This is frequently presented in the form of a “wrap” program that entails a large, all-encompassing fee. The wrap fee includes compensation to the investment manager, the advisor, and the advisor’s employer. These layers of fees add up. While convenient, it may prove to be an expensive proposition to the investor. As a result, many investors are gravitating to fee-only independent wealth managers who offer open architecture in a conflict-free manner.

The role of a fee-only advisor is quite different from that of the more traditional relationship between the client and his broker or trust officer. A fee-only wealth manager does not and will not manufacture or sell investment products; their only source of income comes directly from their clients. They will refuse compensation from investment managers, insurance companies, banks, and other sources of investment merchandise. His or her role is to work with you to structure a multi-manager portfolio that fits your specific investment needs. The advisor will likely spend time with you to understand your goals, objectives, and risk tolerance long before the investing process begins. Many fee-only advisors have Certified Financial Planners on staff. These professionals will work with you to ensure that you have the right structure around your assets (i.e. wills, trusts, etc.) to help you meet you your long-term financial goals in the most tax efficient way possible.

It is becoming more difficult for investors to pinpoint outstanding investment talent. There are so many choices that one can become overwhelmed. Fee-only wealth managers offer true open architecture. They are not limited by an investment platform. This enables them to seek out the best and brightest managers in all asset classes. You should expect that your wealth manager has conducted a thorough amount of due diligence on each of the managers in the suggested portfolio. The advisor should suggest separate accounts over mutual funds. Separate accounts are less expensive and more tax efficient than commingled funds. Since your advisor is not compensated for transactions in your account, he or she will probably recommend that your assets be held at a large discount brokerage firm. This will help minimize overall costs to you. While you will be receiving monthly statements from your brokerage firm, the wealth manager should provide consolidated performance reporting on a monthly basis.

To review, here is what individual investors should expect from an independent, fee-only wealth manager:

* A thorough independent appraisal of your current investment portfolio,
* A discussion about what you want to accomplish with your investment capital,
* An examination of the structures around your assets such as wills, trusts, and retirement plans,
* A well-designed asset allocation model that fits your investment goals,
* A suggested multi-manager portfolio that foots with your goals and objectives,
* Thorough and ongoing due diligence on each of the managers in your portfolio,
* Face-to-face meetings at least twice a year to update you on performance and review your objectives,
* A strong effort to reduce investment costs (i.e. manager fees, brokerage commissions, etc.),
* Monthly performance statements,
* No pressure to buy or sell any investment product,
* A fee based upon the amount of assets under advisement.

Fee-only wealth managers offer an attractive alternative to traditional sales-based financial relationships. You have the comfort of knowing that the advisor is working in your best interests and that all recommendations come from a desire to do an excellent job for you.

Copyright 2010 Massey Quick and Co., LLC – All Rights Reserved

Stewart R. Massey is a Founding Partner and the Chief Investment Officer of Massey, Quick and Co., LLC, an investment consulting and wealth advisory firm. Founded in 2004, Massey Quick provides comprehensive wealth management services to high net worth families and individuals and traditional investment consulting services to endowments and foundations. More information is available at http://www.MasseyQuick.com.

There are two main types of accounts that you can have when it comes to purchasing securities. These are active and passive accounts. It is up to you to choose which is right for your investment style and portfolio.

A professional manager can make all the difference in the world in helping you make money and to keep you from loosing a lot of money. You can be your own professional manager, but that requires hard work, education, and time from you. I know a lot of people that use other people as well as do it themselves. It is all who you are and who you want to be. If you don’t want to manage money and have no interest, then you should find a great money manager.

An actively managed account is overseen by an institution who’s investment experts watch your money. They research the top companies that are on the market and offer them to you to invest your money in. Some of these people often trade many times per day, all depending on what you want with your money. You will need to look into the investment managers track record to see that know what they are doing. Interview and sit down with them. Don’t just hand your money over to someone that you think will do a good job. This is money you have worked hard and long for. Look online at sites like MorningStar or Value Line to see reviews of good companies to work with.

A passive management style is very common also. These type of strategies involve a lot of buying and holding. This type of account just needs to be over seen everyday to make sure they don’t keep a loosing stock. Most of these accounts will be based off a particular index that the account manager will want to mirror. If you take the Dow Jones Industrial Average for example. Lets say a fund manager wants to mirror this fund because they think it will be going up. They will most likely buy the DIA or the actual Dow Jones fund to mirror this. It is a very good strategy and can help you make money.

Darius has been writing online for a while now and has a lot of different interests. You can check out some of his websites at http://www.colemanmosquitodeleto.com and http://www.citronellabarkcollar.net

Investment management, two words that are in the mind of anyone that has invested in a company or organization. What exactly do these two words mean? Strictly by definition, investment management is the professional management of assets and securities in order to reach an investment goal that is beneficial to the investor. Assets and securities can translate to numerous things from stock shares to real estate. The investor can be anyone, from a large business firm to an individual.

Directly related to investment management come the terms asset management and fund management. Asset management is a term that is commonly used to refer to the management of collective investments. Fund management is the more generic term. Fund management can be used when speaking about any and all forms of institutional investments, and can be used as well when on the topic of management by private investors. The professional investment managers who specialize and deal in advisory often have their services referred to as portfolio management or wealth management. These specialists often time represent the wealthy private investors.

In order to break down what takes place during the management of these investments, one would need to understand each related process. Among these processes are financial statement analysis, asset and stock selection, plan implementation and ongoing monitoring of the investment. All of these things can be handled by investment management services and advisers. This industry is both a large and important global industry which by itself is responsible for funds ranging in the trillions. As this is a global industry with investors from around the world, the trillions in funds are from every possible currency. Many of the largest companies in the world also take part in the industry by employing investment managers and staff, all of which results in billions in additional revenue.

How can all of this effect businesses? Generally speaking, large corporations often times control large amounts of shareholdings. Usually these businesses are more or less fiduciary agents instead of merely principals or direct owners of shares. By owning a large majority of shares, investors can theoretically control or alter a company they have shares in. This is possible thanks to the voting rights that the shares carry. How all of this could effect the management of a company is because of the simple fact that a share owner can pressure or possibly out-vote other shareholders at meetings.

Regardless of whether it is a large corporation or individual making an investment, having the proper tools and knowledge to manage that investment is critical when thinking of success. Corporations and individuals alike rely on specialists to oversee and manage their investments. Merely trying to jump in to the industry by purchasing shares and investing in a business most likely isn’t a sound choice. Seeking the aid of a professional with knowledge of the industry beforehand can help an investor from losing money in their investment, and overtime help to achieve a profitable outcome. When it comes to investment management, it is most likely the safest choice to seek aid from an expert, rather than attempting to do it yourself.

If you are looking for more investment plan and guide. Please visit www.investmentpress.net you will find a lot of useful articles about investment there.

We have all been taught about the merits of diversification in investments. It is a variation of the old adage, “Don’t put all your eggs in one basket.”

Indeed, professional investment managers are trained to develop portfolios according to the tenets of Modern Portfolio Theory (MPT). MPT traces its roots to the work of Harry Markowitz and his seminal writings on “Portfolio Selection.” In his pioneering research, Markowitz was able to demonstrate the mathematical basis for diversification.

Essentially, Markowitz showed that selecting assets that have a positive expected return but exhibit low or (preferably) negative correlation to one another produces a combined portfolio that retains the positive expected return properties, but with lowered risk (as defined by variance).

Theoretically, this result arises due to the presence of at least two major sources of risk: nonsystematic (or unique) risk and systematic (or market) risk. While it is very difficult to eliminate market risk, it is possible to reduce the risks associated with unique investment assets. By combining investment assets that are subject to certain specific, unique risks with other investment assets that are subject to other unique risks, it may be possible to reduce the overall risk of the combined portfolio.

For the past several decades, this has been the mantra to which all investment managers adhered. Unfortunately, recent experiences in the capital markets have led both academics and professional investment practitioners to rethink portfolio construction. With the increasing interconnectedness of global markets and investment pools, we have seen that correlation structures among various investment assets are not always stable.

In fact, assets that typically exhibit low correlation with one another can dramatically change direction and begin exhibiting increased correlation during periods of market distress. The increased correlation leads to a reduction in the power of diversification and thus to increased risk in the overall portfolio. Unfortunately, this upward shift in correlation happens at exactly the time when an investor needs correlation the most: market distress.

As a result, investment managers need to be exceedingly careful in constructing portfolios that are able to withstand the dynamic nature of correlations, especially as the market experiences large disturbances. These “disturbances” are becoming much more commonplace: the Asian currency crisis of 1997, failure of the major hedge fund “Long Term Capital Management” in 1998, the burst of the “dot-com” bubble in 2000/2001, the terrorist attacks of 2001, the burst of the real estate bubble in 2007/2008, and the credit crisis of 2008/2009. In nearly every case, correlation structures among various assets increased at precisely the time when investors needed protection the most.

The best portfolio construction techniques have an appreciation for the fact that correlation structures may change during different “states of the world” or regimes. By incorporating these state-dependent correlation structures into portfolio design and optimization, investment managers can move to better protect portfolios during times of market distress.

Sharath M. Sury – Founder and Executive Director of the Sury Initiative for Financial Innovation & Risk Management (SIFIRM) at Santa Clara University, Sharath Sury devotes his time and energy to bringing together thought leaders who can address the development of real-world solutions to the current economic climate. Sharath Sury has worked with some of the brightest and most experienced experts in finance and risk management and aims to bring a greater sense of ethics and responsibility to his profession. Through his efforts, Professor Sury has established this invaluable forum for the research and discussion of new developments in the world of economics and finance and has attracted a renewed spirit of innovation to the industry. Sharath Sury also serves as an Adjunct Professor of Economics at the University of California and Adjunct Professor of Finance at DePaul University in Chicago. Sharath Sury’s interest and experience in wealth management began as an Associate and later Vice President at Goldman, Sachs & Co. He later founded and worked at S4 Capital, where he earned numerous accolades for his work.

http://blog.suryonline.net
http://everything-finance.net

As the dust settles from the Wall Street meltdown of 2008, the average investor needs to chart a course that threads its way through future growth and perils. Simply relying on the old investment adages may not be the wisest course. Here’s some things to think about.

(1) Wall Street is not your friend. At this point, it should come as no surprise that the goal on Wall Street is to make money for Wall Street, rather than giving investment advice that the average investor can actually benefit from. Washington makes a lot of noise about reform, but don’t hold your breath about anything happening. We have gone through two major Wall Street screw ups since 2000 that cost most individual investors a good chunk of their portfolios. First was the attempt to convince everyone that there was a “new math” on how to value companies that had some relationship to the internet and, after that didn’t exactly work out, Wall Street moved to use the environment of easy money to package high risk real estate mortgages that fell apart when real estate values started to decline. Even though most investors never owned internet stocks or CDO’s, the collapse of these products helped drive down the stock market in general. To thrive, Wall Street must continue to find and distribute economic “hot spot” products. A good bet in the future might be derivatives created from “cap and trade.” After all, trading air seems ready made for the street.

(2) Take a new look at “asset allocation.” Although asset allocation models do not ensure a profit or protect against a loss, they have become the standard of investment models for many investors. The theory itself is over 50 years old. The world has changed since Dwight Eisenhower was in the White House. Thanks to a developing global economy, asset class correlations are becoming more similar and this increases volatility in a portfolio. Don’t exit asset allocation like the last helicopter out of Saigon, but do avoid the rigid “pigeon holing” of asset classes that’s become prevalent in asset allocation design. Investment managers today need the flexibility to move a little if the asset class returns really moves against them. You can’t take your boat out without a life preserver on board. Your portfolio should be no different.

(3) Does passive indexing investing still work? Index investing was the “flavor of the month” back in the 1990’s when proponents of “efficient markets” promoted that it was so difficult to beat the market that everyone’s best bet was simply to mirror a market index and go to the beach. Today, the market is full of inefficiencies and with the S&P 500 flat lining over the last decade, it’s time to pour the sand out of your shoes and get back in the game.

(4) Portfolio “compression” is the next best idea. The average investor doesn’t need to squeeze all the upside out of a bull market as long as there’s some protection against the next bear. Cutting portfolio volatility should be on your new year’s resolution list. The future market road will continue to be rough and rocky roads generally demand good shock absorbers. If you are a competent investment mechanic, by all means install them yourself. If you need a qualified mechanic, seek one out. If you enjoy a really rough ride, just hang on with your current portfolio. You may get a few teeth knocked out, but that’s not what’s going to hurt the most.

Although the stock market is going through a tough patch, it’s still where a lot of the action is to outpace inflation and grow funds for the future. No promises, no guarantees, but that’s always been the story from the beginning. Going forward, caution will be your best friend. One old adage you will still be able to hold near and dear is that if it looks too good, it probably is.

Glenn (”Chip”) Dahlke, a senior contributor to the Living Trust Network, has 30 years in the investment business.

Copyright 2010. Living Trust Network, LLC. All Rights Reserved

The results are in! Roughly 260 people took the time to respond to the first income investing survey and I thank y’all very much for being so generous with your time. First, the generalizations:

As you will recall, the survey included eight “mostly true” or “mostly false” statements. Most people answered all of the questions without explanation or analysis (as requested), and most of the analysis explained exceptions to the “in general” nature of the questions being asked. All of your comments were well thought out, most were right on target and much appreciated.

Unanswered questions were judged half right and half wrong because there were too many of them to label totally wrong and wind up with meaningful statistics. Still, as a class, those who responded barely achieved a passing grade. A composite grade of just 72% correct is pretty scary.

Only 20 people assessed all eight statements correctly.

Here are the individual item results, based on my forty years of investment experience, including 35 managing OPM (other people’s money) professionally.

1. Tax deferred income is better than tax-free income. This turned out to be the easiest question of all, as 92.3% of you correctly labeled it “False”. One lesson to be learned early in your investment life is to grow a personal, tax-free, portfolio. “Uncle” has dibs on your retirement plans— all of them.

2. All individual investment portfolios eventually become retirement income portfolios. 38.5% of you failed to get the point— you can’t spend market value unless you sell the securities, and there is no guarantee that the market will cooperate with your retirement plans. Eventually, this one rings “True”, loud and clear.

3. An income investment portfolio should have a stable market value. In thirty-five years of investment management, I’ve determined that the single biggest error investors make is their focus on the market value of income securities. Stable income yes; stable market value – not! Roughly 25% of you incorrectly put this one in the “True” column.

4. Income investors should seek out mutual funds with the highest “total returns” to insure increasing levels of income. You did even worse on this one. 27% thought that higher total returns mean higher income— not at all. “Total Return” analysis is a mutual fund shell game. You can’t spend the growth— and you really should avoid open-end Mutual Funds as income providors.

5. Most often, market value changes will have no impact on the income generated from income-purpose securities. I was not surprised that so few respondents agreed with this mostly “True” observation. Clearly, too many investors (25%) are unclear on the nature of income securities.

6. 401(k) and IRA programs are excellent pension plans. Half of you, that’s 50% people, think of your defined contribution, self directed, savings plans as pensions. Shame on everyone: the government, financial advisors, tax and estate professionals, employee benefits professionals, RIAs— all of us.

7. Government bonds carry the lowest risk of loss, BUT they do fluctuate in market value. Nearly 25% of you missed the boat on this how-could-you-not-know-that “True” statement. My mouth stayed open for days.

8. Tax-exempt dividends in excess of 6% were paid without interruption throughout the financial crisis and remain available today. Also “True” at the time of the survey, and still true today— and only a handful of you emailed me for an explanation.

In summary, there were four generally “True” and four generally “False” statements, and I do appreciate that individual circumstances may make for some slight change in assessment. But if this were a “college entrance exam” for future retirees, retirement planners, or investment managers— well, barely passing just doesn’t cut it.

Many of you will disagree with my assessment. That’s fine, I expect to be beaten up a bit by people who are unfamiliar with my approach. But please be gentle, or at least civil.

Remember, your participation has earned you a free workshop, and thanks again for the input.

Steve Selengut
http://www.sancoservices.com
http://www.valuestockindex.com

Professional Portfolio Management since 1979
Author of: “The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read”, and “A Millionaire’s Secret Investment Strategy”

Firms and managers who are registered with the CFTC must follow compliance rules by completing a self-examination checklist. Every year firms need to do a self-examination, and some firms are hoping to make this process easier for investment managers by creating more organized lists online. NFA checklists include rules to be followed by specific registration categories such as CTAs, CPOs, IBs, and FCMs, as well as general rules that need to be followed and tasks to be completed for all registered firms. Managers are finding it more difficult to stay organized and up-to-date with regulations, as well as informed of their own firm’s issues, and these checklists are designed to keep managers’ compliance issues limited.

Compliance is an important topic for investment managers to stay informed and organized with, but many compliance rules are extremely difficult for most managers to understand and follow. The CFTC has recently created new forex registration regulations, and CPOs, CTAs, and IBs are now required to stay in compliance after becoming registered. The NFA has provided a list of rules to be followed, that can be checked off as the firm goes through the process.

Many firms will find it easier to adjust the format and structure of these lists, in order to clarify their place in the NFA self-examination checklist and record any issues with an individual rule. Many managers need to be able to go back and forth between the checklist and other priorities without fear of losing their place in the self-examination or trying to remember what rule they need to check next.

There are also several appendices throughout the checklist that further explain a rule in greater detail, and these additional guidelines need to be kept in an accessible place for the firm or manager to refer to when needed. There are also mentions of several CFTC forms that need to be completed throughout the year, and managers will need to record the completion of these forms as well. Additionally, firms need to find a way to document that they have fulfilled the self-examination requirement each year for their own personal records.

With the release of the new forex regulations and the requirement for CPOs, CTAs, and IBs to become registered through forex registration, following compliance rules has become a greater issue. The yearly self-examination aims to offer both the firms and the NFA with ways to stay on track with new and changing rules.

Ariana Adams writes articles on forex registration. You can access more information by going to http://www.forexregistration.com