That's about what I'm thinking, yes. A financial advisor tries to fit the client's unique needs. Because of this I think they might often do well to focus on good asset allocation rather than trading.
The money manager or trader will try to make profits but just as much I think to control their risk and avoid damaging their track record, something the financial advisor will probably be looking at closely before suggesting the fund or program to their clients. If the managers are also trading their own money they'll be more sensitive to black swan type, low-frequency risk (like the risks inherent in options selling). Brokers in the strict sense are a different story because they usually don't rely on a track record and can always hope to drum up more business.
Most mutual fund managers (though not all) have track records that over time return to broader index performance, so they might not be worth it a lot of the time (with the notable exception of helping investors gain overseas exposure). That's not the case with commodity trading advisors or hedge funds whose returns may be uncorrelated with stocks and therefore can provide diversification for their clients whether or not they beat the stock market. For example in 2008 CTA's as a class were up on the year. A problem with them is that they might try to get a great ten-year run knowing that one day they'll blow up. If they're not trading their own money they might not care since making millions for a few years is generally enough to spend the rest of your life on a yacht with a pretty wife after the fund implodes...
Because people with less than a million dollars generally can't invest in hedge funds, CTA's could be an option -- some good CTA programs require only $10,000 or so, though usually it's closer to $50k. I wish more investors could take advantage of hedge funds and other alternative vehicles, because I think that the wealthy have better access to the best traders. That's a shame because it adds to and accelerates the disparities in wealth, where the rich continue to get richer (though they took a hit generally last year) faster than everyone else. I personally have a very idealistic dream of creating a fund or program where anyone could have a micro account, so that someone in Ghana or Spanish Harlem could invest $12 if they wanted. Right now it's impossible, maybe with the exception of spot forex.
Anyway, I digress... thanks for the compliment btw.
The money manager or trader will try to make profits but just as much I think to control their risk and avoid damaging their track record, something the financial advisor will probably be looking at closely before suggesting the fund or program to their clients. If the managers are also trading their own money they'll be more sensitive to black swan type, low-frequency risk (like the risks inherent in options selling). Brokers in the strict sense are a different story because they usually don't rely on a track record and can always hope to drum up more business.
Most mutual fund managers (though not all) have track records that over time return to broader index performance, so they might not be worth it a lot of the time (with the notable exception of helping investors gain overseas exposure). That's not the case with commodity trading advisors or hedge funds whose returns may be uncorrelated with stocks and therefore can provide diversification for their clients whether or not they beat the stock market. For example in 2008 CTA's as a class were up on the year. A problem with them is that they might try to get a great ten-year run knowing that one day they'll blow up. If they're not trading their own money they might not care since making millions for a few years is generally enough to spend the rest of your life on a yacht with a pretty wife after the fund implodes...
Because people with less than a million dollars generally can't invest in hedge funds, CTA's could be an option -- some good CTA programs require only $10,000 or so, though usually it's closer to $50k. I wish more investors could take advantage of hedge funds and other alternative vehicles, because I think that the wealthy have better access to the best traders. That's a shame because it adds to and accelerates the disparities in wealth, where the rich continue to get richer (though they took a hit generally last year) faster than everyone else. I personally have a very idealistic dream of creating a fund or program where anyone could have a micro account, so that someone in Ghana or Spanish Harlem could invest $12 if they wanted. Right now it's impossible, maybe with the exception of spot forex.
Anyway, I digress... thanks for the compliment btw.
