|'Feeders' make money from the savings
Feeders are not necessarily parasites. They provide
a service that somebody wants, otherwise they would not exist. But
they are still a cost in the savings chain.
Independent Financial Advisers(IFAs)
IFAs that are proper financial planners are providers, not feeders.
Professional financial advice is vital. But most IFAs are commissioned
product sellers, and therefore feeders. Anyway, they are sufficiently
important to have their own page: IFAs
.... connect you to the market. You buy, someone else sells, the
broker takes a commission.
Brokers make little money if you invest - just the
administration fee on your account. They only make real money if
The major brokers also have important businesses advising
companies on their relationship with the stockmarket. If these brokers
don't promote their client companies they risk losing the client.
.... make money out of deals: floating companies (meaning selling
the original owners' shares to the wider public), arranging acquisitions
and mergers, selling unwanted activities, corporate restructuring.
So investment bankers are always trying to sell to business leaders
the idea that they should be doing something different from what
The status quo, or simply trying to run the business
better, makes no money for them.
.... do the investigatory spade-work on companies. They come to
a conclusion on whether the share prices of individual companies
are above or below the underlying value. In other words whether
they are a 'buy' or a 'sell'. What they do with this information
depends on who they work for. They would be only human if they slanted
their research to meet the needs of whoever is paying them.
If analysts work for brokers ('sell-side' analysts),
they would want to present a clear buy/sell story that the broker's
salesmen can use. Remember, a broker only makes money when you trade.
If they work for Funds ('buy-side' analysts) the
fund managers will use the research for their own decisions. It
helps if the research is in terms that can later be used justify
decisions to clients.
In the US, the use of sell-side analysts to push
stocks has come to be symbolised by an analyst named Jack Grubman
who famously held his buy recommendations on technology stocks through
the height of the tech stock boom while privately describing them
in internal emails as 'POS'. This was his shorthand for 'piece of
Journalists and their employer...
.... want to sell their newspapers and magazines and make you watch
their TV programmes. If that is consistent with offering good advice,
fine. Unfortunately, careful inactivity - the secret of most good
investing - is inimical to exciting journalism.
The Media also have space to fill, and their are plenty
of people with a vested interest in the story who are willing to
help them out. Misleading
Investor relations advisers...
.... help a company 'manage' its financial newsflow and anything
else that affects its share price; also called 'financial PR'. They
also, coincidentally, help the Chief Executive present himself in
a good light to the people who control his future. No, not the Chairman
or the Board but the senior investors in the company - the fund
If you visit the head office of a major company you
might expect that the brightest and best are beavering away there
trying to squeeze more money for the shareholders out of widget-making
or whatever. In fact you will find that the main focus of attention
is the share price.
This is entirely sensible. CEOs do not get rewarded
for delivering value for shareholders. They get rewarded for doing
what their owners (the Funds) want. And what they want is predictability.
If a company's prospects are poor the Funds can always sell that
share and buy another. But if a company suffers a nasty surprise
and its stock drops 20% before the insiders can get out, there is
no recovery. Worse, the professionals look stupid.
That is why the most heinous crime for a CEO is to
get his profit forecast wrong. He can commit horrendous strategic
mistakes, but so long as he keeps ahead of the story he may survive.
The Marconi disaster was perpetrated by executives
who were doing what their owners wanted (which was hyperactivity
investing in glamorous areas to make a good story that could be
sold as a good investment case). It was only after they failed to
inform their owners that it was all going wrong that they got fired.