Peter Hodson has left Sprott Asset Management to start his own independent research firm, 5i Research Inc.
Mr. Hodson was the chairman at his former shop, but said he wanted to try something in part because he grew tired of constantly having to worry about conflicts. When he wrote reports or went on TV, "I always have to think in the back of my mind, what if somebody at my [firm]owns that company," he said. "You're always sort of second-guessing yourself."
Mr. Hodson also mentioned the problems that fees create, particularly on structured products. "Investors could clearly do some of those [strategies] themselves, but because they're all packaged nicely and neatly and the broker gets paid a commission, there's a real big reason to sell those." In the past, Mr. Hodson had trouble saying anything about these types of products.
Moreover, he brought up the difficulties with things like research restrictions on initial public offerings. If an investment bank is involved with the offering, the bank's research analyst isn't allowed to comment for a certain period of time. That's problematic because IPOs typically have big syndicates, so it's hard to find a brokerage that isn't involved yet knows the company well enough to say anything.
"If you're sitting at home and you get a call from your broker about some new 'hot' deal, and you say 'Well can you give me some research?' the broker says 'No, I can't,'" Mr. Hodson said.
Mr. Hodson went on to mention that at times great products aren't sold because they don't pay big fees to brokers. If these products don't have research behind them, retail investors will never know about them.
Before leaving Sprott, Mr. Hodson scanned the competition. He knows that there are a lot of 'independent' newsletters out there, but he found that many of the writers get paid by companies, or the writers invest in the stocks that they comment on. Mr. Hodson says none of those conflicts will affect him.
He will also simplify the ratings system. The brokerages all use different scales, and he wants to get rid of the confusion by adopting a letter grade system, just like in school. If a company or a product is an A+, the investor will know its better than a C- and an F, no questions asked.
In June Sprott killed Mr. Hodson's poor-performing Growth Fund by merging it with its Small Cap Equity Fund. At the time John Ciampaglia, chief operating officer of Sprott Asset Management, said that Mr. Hodson would stay with the firm.