And while much might be wrong, the industry does provide the tools to help yourself engage in markets more cost effectively through low cost brokerage firms using exchange traded products and the internet provides the opportunity to learn how markets work, how behavior can work against the desired outcome and every other detail that could be reasonably thought as being an important ingredient to financial success.
This includes simple accounts, strategies and products. This article from Bloomberg gives a rundown of examples where individuals were hurt by commission-rich, complex products; mostly non-traded REITs and annuities. RIA-managed portfolios consisting of a few exchange traded products (both equities and fixed income) and few individual issues (both equities and fixed income) where the only commission is $7 or $8 going to a brokerage firm should be better able to avoid the pitfalls isolated in the Bloomberg article. The RIA will still have to account for performance and of course this model won’t solve stupidity but the financial professional will have a much easier time if they never have to explain why something had an upfront 7% sales charge.
This issue of simplicity is not limited to the RIA world. Here is a lengthy article about the Yeshiva University endowment which blew up when it increased its allocation to hedge funds.
The opportunity to overcome all the obstacles cited by Olen exists but requires the resourcefulness to learn how, stick to it and adapt to any surprises that come. As an advisor, your clients are counting on you to help them through this even if they don’t spell it out as such and someone choosing to do this on their own; well it’s bootstrap time.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.