Wednesday, May 29, 2013

Cloud questions answered: Xero webinar

Rachael Power for Accountingweb writes:  AccountingWEB recently ‘hung out’ with Xero in a live webinar to answer practitioners' big cloud questions.
More than 300 of you tuned in to view it live on the day, with a further 700 tuning in to the recorded version later on. 
Because of the large attendance, we received some questions from the audience we found we simply couldn't fit into the webinar time-slot. 
We gathered eight questions and passed them on to Xero managing director Gary Turner, who used his cloud expertise to answer them:
What are the benefits of cloud-based IT hosted services?
Gary: For accountants, the ability to remotely access and work on clients’ live data at any time is much more convenient than passing client records back and forth.
Working online also permits the accountant to offer more proactive and timely advice such as forecasting a client’s likely tax liability well before the end of the year, or preparing management accounts for clients as the year progresses.
For clients, the ability to share their financial data securely with their accountant or other advisers and stakeholders in their business makes it easier to collaborate and share insight into the performance of the business. It also makes it easy for clients to access their accounts data and carry out bookkeeping tasks wherever they like, such as in a coffee shop, at home or on the go with smartphones or tablets.
If clients give us “brown paper bag jobs”, why would using cloud software make them improve?
Gary: The accountant or bookkeeper can easily access to the data and the if client’s accounting system is being regularly refreshed by a bank statement upload or a live bank feed.
Therefore, the job of preparing accounts using the banking data as the primary source is a much more efficient way to quickly resolve the financial position of a business, and the reliance on paper records becomes the exception rather than the rule.
This way, a practice is able to grind through low value compliance work in much less time than with manual records and traditional software.
What are some of the business uses of cloud apps in accountancy?
Gary: As mentioned earlier, flipping the compliance process to being driven off banking data is a significant and more efficient way of working.
Alongside that, the convenience and efficiency of having a single set of client data in the cloud that both the business and practice are working on simultaneously is quite transformational for both the client and the accountant, never mind just more convenient.
What happens if the cloud company I’m with goes into administration?
Gary: It’s critical that accountants and clients conduct sufficient diligence prior to using any new cloud-based service or service provider. Just because it’s easy to set up doesn’t eliminate the accountability and need to check the credentials of the provider, their commercial viability as a business and the processes they use to safeguard client data and maintain a reliable service.
It’s great that there are so many new cloud services coming to market, but the reality is some of these will fail and if users fail to exercise sufficient care up-front, so I’d advocate adopting a “buyer beware” mind-set and make doubly sure that you’ve thoroughly checked-out potential suppliers and services adequately before deciding to use them.
As for Xero, we recognised early on that in order to provide a reliable and resilient service that people could put their trust in was not going to be something we could do cheaply.
So, we’re a very well capitalised publicly listed company with £40m of cash reserves and over 400 staff to ensure all our systems and operations, and our ability to build a strong, reliable service should withstand even the toughest scrutiny.
Some questions to check potential cloud suppliers against would be:
  • Who are you? Who is behind the business, How long have you been around? Are you here to stay? Prove it
  • How safe are my accounts? Have you ever lost any data?
  • Give me some references? Who do I trust that trusts you?
  • How good is your support? If I have a question at 3am will you be there?
  • Why is your system better than the rest?
What are the costs and implications of moving from cloud back to desktop?
Gary: It is possible to do this, but the thing about cloud is that you can try before you buy. 
My advice would be to try the cloud out before you commit to it, that way you will see if it is best suited to you and will lessen the need to migrate your data back to the desktop. 
But if, for some reason you did want to migrate back to desktop because, if for example you were relocating to a remote location with no internet connectivity, you can export your data. In my personal experience, I've never heard of someone going back to desktop from the cloud. 
Any decent cloud software will give you the ability to migrate back to desktop, but the implications of doing this will increase with the size of the employer and how big the user is - i.e. how many employees they have.
How much storage space does one get per client in the cloud?
Gary: We don't have a notion of storage as such. Xero's target audience are companies with hundreds of invoices per month and we give them more than enough capacity to do that. 
There's no limit to the data, but I would say if you have more than around 1,000 invoices per month, you will probably need a bigger product.
Can we get a free trial of Xero?
Gary: Yes, you can. Anyone can play around with the Xero trial, on both the client and accountant side. 
We have an accountant partner programme for bookkeepers, where you can partner up with Xero, which provides software, marketing leads, training, promotional material and support for free, which is worth looking into too.
Should you include in your engagement letter that you are putting clients' information on the cloud?
Gary: Yes, I think you should make it very clear to your client - there's no reason why you should hide the fact that you're using cloud software. 
Be encouraging of it and definitely make them aware of it. Do go out of your way to tell them, don't simply inform them that you're using it; explain what it is and address their questions or concerns about it. 
You can't work with a client on cloud accounting software without making them aware that it is that kind of software you're using. 
After all, you're doing it to help them, once they understand the benefits of working with you online, they'll thank you for it

If you want to see more cloud questions answered, you can re-watch our webinar, recorded live at AccountingWEB offices.  
Posted on 5:56 AM | Categories:

Burton G. Malkiel: You're Paying Too Much for Investment Help / Index funds have far outperformed the average active manager, and at a far lower cost to the investor.

BURTON G. MALKIEL for the Wall St Journal writes:   From 1980 to 2006, the U.S. financial services sector grew from 4.9% to 8.3% of GDP. A substantial share of that increase represented increases in asset-management fees.

Excluding index funds (which make market returns available even to small investors at close to zero expense), fees have risen substantially as a percentage of assets managed. In my judgment, investors have received no benefit from this increase in expense ratios.
The increase in fees could be justified if it reflected increasing returns for investors from active management, or if it improved the efficiency of the market. Neither of these arguments holds. Actively managed funds of publicly traded securities have consistently underperformed index funds—by roughly the differential in fees charged.

Passive portfolios that held all the stocks in a broad-based market index have substantially outperformed the average active manager since 1980. Therefore, the increase in fees likely represents a deadweight loss for investors.
There are substantial economies of scale in asset management. It is no more costly to place an order for 20,000 shares of stock than for 10,000 shares. The same annual report and similar filings to the Securities and Exchange Commission are required whether an investment fund has $100 million or $500 million in assets. The due diligence required for the investment manager is no different for a large mutual fund than for a small one. Modern technology has fully automated such tasks as dividend collection, tax reporting and client statements. Academic research has documented substantial economies of scale in mutual-fund administration.
In 1980, the equity mutual-fund industry managed less than $26 billion of assets. By 2010 the equity assets of the mutual-fund industry totaled almost $3.5 trillion. Substantial economies of scale could have been passed on to individual investors, resulting in lower expense ratios. But those economies appear to have been entirely captured by asset managers. The same finding holds for asset managers who cater to institutional investors.
In 1980, the annual expense ratio for all mutual funds (as measured by Lipper Analytic Services) was 66 basis points. In 2010, the equivalent (asset weighted) ratio was 69.2 basis points. But in 2010 almost 30% of mutual-fund assets were invested in low-cost index funds, which represented an insignificant share of assets in 1980. Thus the annual expense ratios for actively managed funds rose to 91 basis points from 66 basis points. While expense ratios paid by institutional investors are considerably lower than those paid by individual investors—by about 40%—these fees have not fallen over time as a percentage of assets managed.
However, index funds and their exchange-traded counterparts have allowed the individual investor to benefit from scale economies. Exchange-traded funds that track the Standard & Poor's 500 Stock Index or the Wilshire 5,000 Total Stock-Market Index are available to individual investors at expense ratios of five basis points or less.
There is another way of looking at these asset-management fees. Total fund assets increased 135 times since 1980, but the total expenses paid to equity mutual-fund managers increased 141 times (to $24,143 billion from $170.8 million).
Of course, when stated as a percentage of assets, these fees do look low—close to 1% of assets. But compare them with returns produced. If overall stock-market returns average, say, 7% a year, fees of 1% point are actually about 14% of stock-market returns. Mutual-fund fees take up well over 50% of dividend distributions.
Even these recalculations may substantially understate the real cost of active investment management. A more reasonable way to assess the benefits of active management is to measure fees as a percentage of the "excess" returns produced by active managers over the returns available from low-cost index funds. Overall, these excess returns seem nonexistent.
Why do investors continue to pay such high fees for financial services of such questionable value? Many may incorrectly judge the quality of investment advice by the price charged. Individual and institutional investors may suffer from overconfidence and truly believe that they can select the best investment managers and earn excess returns, despite historical evidence to the contrary.
Outperforming the consensus of hundreds of thousands of professionals at the world's major financial institutions is next to impossible. It has been for decades. Over long periods, about two-thirds of active managers are outperformed by the benchmark indexes. The one-third that may outperform the passive index in one period are generally not the same as in the next period. But investors can benefit from low-cost index funds and their exchange-traded cousins.
The lesson for investors is very clear: You can't control what markets can do, but you can control the costs you pay. The less you pay to the purveyors of investment services, the more there will be for you. The quintessential low-cost investment vehicles are index funds, which should comprise the core of every investment portfolio. The high fees charged for active management cannot be justified.
Mr. Malkiel is the chief investment officer of Wealthfront and serves on the advisory board of Rebalance IRA.
Comments
We welcome your thoughtful comments. Please comply with our Community rules.
Want to read only subscribers' comments?
Nonsubscribers' comments:
What's This?
showfadehide↑
«
  • 1
  • 2
»
Recommend a comment by clicking

    • 10 hours ago

    I am not getting any investment help and...needless to say I am getting clobbered :(.
    Recommend

    • 9 hours ago
    • WILLIAM PEITHMANN Wrote:
    It doesn't get any simpler than the Couch Potato Formula that Scott Burns suggests: put 1/2 in an intermediate term investment grade bond fund, the other 1/2 in a S&P 500 index fund, then twice a year balance the halves by appropriate exchanges/purchases. Management costs are virtually nil and you will outperform 75% of all managed funds. I use Vanguard funds, probably the cheapest.
    Recommend

    • 9 hours ago

    I'm assuming that Mr. Malkiel, an investment advisor himself, is about to be fired, and wanted to get a last explosion in before he took his pile to Monaco.

    But I find it odd that it hasn't occurred to him that people Like Jamie Dimon, and certainly Lloyd Blankfein, probably know "a guy". This piece could be more dangerous than the panning of Islam by that former Muslim in yesterday's WSJ.
    Recommend
      • 7 hours ago

      Bogle has been on the "we Re paying too much management fee" train for such a long time. In his case, it suits him, given Vanguard 's index focus. But a whole bunch of band wagon jumpers are on this management fee topic now.

      However, if the whole industry shifted to index funds, then it becomes much easier for an actively managed fund to beat the market. Right now, they are competing against each other.

      Also, the use of averages is misleading. So, the average fund is more or less inline with the market after fee. But there are a whole bunch of funds which beat it and a whole bunch who are behind. The ones who underperformance consistently lose assets and get shutdown. But while they are in existence they are pulling down the average.
      1 Recommendation

    • 9 hours ago

    Burton's "A Random Walk Down Wall Street taught us this in the 1970's prior to index funds for the Dow 30 or the S & P 500 even being in existence.

    I read his analysis back then, followed it, and am happy now that I did so.
    3 Recommendations
      • 5 hours ago

      .
      Recommend
      • 5 hours ago

      "I read his analysis...followed it, and am happy now that I did so."

      Me too. I read his latest 'Random Walk' only a few months ago and learned a lot, an infinite imp as I new nothing prior. Still, Malkiel's no Oracle of Omaha, no Buffett - no Prognosticator of Princeton by his own admission, so what gives? He shines on that aspect of things in his book, maybe being honest about the situation, maybe not.
      So I have Baby Berkshire BRK/B, Vanguard VTI, Westport Innovations WPRT and Chiquita Banana CQB, so far and seem to be doing ok. I owe Bernanke more than anyone else as he's inflating stox wildly w his warp 9 money printing while the rest of the poor suckers in the obaeconomy trudge along under kruggonomics/obamanomics. What I really need now is insider info from Bernanke on when he's going to layoff his printers so I can jump out of the mkt just prior.
      It's a sad situation overall. Maybe people will finally realize socialism doesn't work, maybe not.
      Recommend

    • 9 hours ago

    Three words: Vanguard Index Funds.
    4 Recommendations

    • 9 hours ago

    I think most of what Burton said is close to true, but I do have a few concerns. If everybody is indexing doesn't that potentially leave a whole bunch of securities not included in the indices to be undervalued because of lack of interest from investors? Conversely, could that mean that stocks included in the indices become overvalued due to increased demand from investors? If so, that could leave many investors with returns below active managers even when including fees. Of course, that lies in the assumption that active managers will pick up on the under owned and undervalued securities and that could definitely not be the case.

    Another problem I had with this piece is that I don't think people really research the active managers or the fund before buying it. I think a lot of people pick whatever is the flavor of the month or the year or just pick a fund because it has a name like Emerging Market Growth Value Blend or some bull spit like that. Heck, I bet a lot of people don't even bother to look at the fees before buying a fund.

    Finally, there are other issues with active management besides cost. A big reason active managers don't outperform is that open ended mutual funds are required to own something like 30 stocks or more for "diversification" reasons. But, there may not be 30 great investments out there that will actually outperform, there may only be like 5 or 10. Plus, non-index open ended fund managers worry a lot about investor withdrawals and this can hurt performance. Closed ended mutual fund managers don't have these problems because there are less restrictions. I would advise investors to seriously consider CEFs, as some have lower fees (though not index like fees) and are trading below net asset value. I worry index funds will become a commodity business in the future and could possibly leave sections of the market illiquid.
    Recommend

    • 9 hours ago
    • SCOTT SHOOK Wrote:
    There is a difference between investment returns and investor returns, for some reason those that write articles like this never seem to mention it.
    2 Recommendations

    • 9 hours ago

    all markets are forward looking yet people pay big bucks to a guy who advertizes his past performance and can't predict the future. now doesn't that make sense--truly amazing! to save fees, read bernstein's 4 pillars of investing and truly understand the significance of the gordon eqn.; and always keep reversion to the mean in mind.
    Recommend

    • 9 hours ago
    • Patrick Hoffman Wrote:
    Mr. Malkeil makes a Major Assumption, people who invest in index funds will stay fully invested regardless of market volatility. If you read anything about behavioral finance, this is NOT the case. So, people will buy high and sell low, this is what kills your performance (market timing), and people's gut always gets it wrong. Not that you are in an active or passive fund. So...if you find the right active manager, there are several, they will handily beat their respective benchmark, but, people lose patience and pull money at absolutely the wrong time. Just look up one fund SHRAX and you will see what I am talking about.
    2 Recommendations

    • 8 hours ago

    Index funds are tax efficient too.
    Recommend
  • 1-10
  • of 15

We welcome your thoughtful comments. Please comply with our Community rules.

Want to read only subscribers' comments?
Nonsubscribers' comments:
What's This?
showfadehide↑
«
  • 1
  • 2
»
Recommend a comment by clicking

    • 8 hours ago

    "Outperforming the consensus of hundreds of thousands of professionals at the world's major financial institutions is next to impossible" it's not and there are fund managers that do in fact have long-term track records that beat the indexes. The problem is that there are thousands of managers that don't and there is no sense in paying for under performance of those managers, so be careful in how you choose.
    2 Recommendations

    • 7 hours ago

    How'd you indexers like having Apple as your largest holding when it fell from +700 to below 400? Or having a heavy, heavy overweight in megacap tech at the NASDAQ peak in 2000? Or having financials as your largest sector in the 2007 bubble?

    Investors as a group cannot outperform the average, by definition. But an individual investor or an individual advisor may do so.
    2 Recommendations

    • 7 hours ago

    Perhaps the problem is that people aren't paying enough... I mean, people pay 5% to Realtor's for a single transaction that requires far less expertise than asset management. My 2 cents...
    2 Recommendations

    • 3 hours ago

    I guess there is no harm in repeating the truth over and over, but John Bogle was persuasive on this point decades ago. Any "investor" who does not know this has done zero homework, so I am not too sympathetic. That said, there are reasons NOT to limit oneself completely to index funds. I do not believe the same arguments apply to foreign index funds, although I have not seen a legitimate study. There, I suspect good active managers can beat a broad index, since some of those markets are not yet "efficient." Also, it is perfectly reasonable for an investor to want to emphasize a particular sector or style, even if a total market index will probably do better over an infinite timescale. Most people don't have infinity as their time horizon.
    Recommend

    • 53 minutes ago

    I challenge ANY fund manager to beat my four biggest holdings over the last thirty years. XOM, MO/PM, MCD, and PEP. My beta is below market, my dividend yields are above market, and these cos. have rock solid balance sheets. Best of all, no fees........
    Recommend
  • 11-15
  • of 15
Posted on 5:56 AM | Categories:
Subscribe to: Posts (Atom)