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News August 16, 2004 Issue

Blodget Warns on Advisers

Henry Blodget, the former high-flying Merrill Lynch analyst who fell from grace and into the arms of regulators when the tech bubble burst, is back in business.

Not in the brokerage or investment advisory business, mind you. In October 2003, Blodget agreed to a permanent bar from both of those industries when settling SEC charges that, among other things, he issued research reports that were contrary to his private views.

Nowadays, Blodget is in the journalism business. He’s working as reporter for MSN’s Slate magazine, in reliance on the Advisers Act’s publishing exemption. As interpreted by the Supreme Court opinion in SEC v. Lowe, a publisher may provide impersonal advice through a bona fide newspaper, magazine or business or financial publication, without acting as an investment adviser. "To honor the letter and spirit of this exemption," says Blodget in a disclosure statement that accompanies his articles, "I unfortunately won’t be able to respond directly to readers, as this might be construed as giving ‘personalized advice’." He said he would address questions and feedback in his articles.

Blodget recently penned a four-part series titled "The Wall Street Self-Defense Manual." In the last installment, Blodget warned readers about advisers’ limitations. Advisers, he said, "have dozens of things to worry about before they can help you pick stocks: recruiting new clients, coaxing new money out of old clients, schmoozing, hand-holding, keeping up-to-date on the torrent of financial-industry products and deals, monitoring positions, executing trades, moving money, processing paperwork, soothing bosses, training assistants, attending ‘compliance’ seminars," he said. "If not for technology, most advisers would barely have time to follow the market, let alone analyze stocks."

What are advisers good for?

The best ones, according to Blodget, are those that do less, not more. "They will be decent, trustworthy people you feel comfortable with. They will help you allocate your assets appropriately and keep your costs low . . . . They will warn you not to expect to beat the market (and explain why) . . . . They may offer expertise on estate planning, insurance, mortgages, or banking services. They may buy you dinner occasionally, or get you U.S. Open tickets. . . . Above all, the best advisers will dissuade you from being stupid — an invaluable service, one we can all benefit from."

[Quotes reprinted with permission of Slate magazine