The establishment financial services industry suffers from a number of flaws in both its current practice and its orthodoxy. I'd like to mention a few in the next few postings.
Firstly, the basic business model of a traditional full-service "wealth management" agent betrays a misalignment of interests that would be laughable if it wasn't so grievous. You hand over your life savings to one of these "wealth management" houses and you get one of two outcomes: they do very well and enlarge your holdings, while taking a portion of the total for themselves, or they do poorly and you lose money—but they still take a portion for themselves. What's wrong with this picture? The "manager" gets paid whether you gain money or lose money!
Let's say that you and several others hand over your savings totaling $10M to a "pro" who charges 0.5% management fee. That means the "pro" is making 0.5% of $10M every year—or $50k. Your "pro" makes some bad investment decisions and that $10M portfolio is now only worth $9M, having lost 10% of its value. The "pro" is paid $45,000. Not a problem?
Actually, it's a big problem. As an investor, you assume risk because you want to win, not lose. Yet the "pro" managing your money wins whether you lose or win—it's just a question of how much he will win. You could lose a fortune; he won't lose a cent—ever. Thus misalignment of interests is a serious flaw in the business model.
What if, instead of getting paid just to transact business, your "pro" was only paid when he made you money? What if he also lost money when you did?
That changes everything. Now, you have a fundamental alignment of interests; you both have skin in the game, the same way a captain of your ship or the pilot of your airplane does. Suppose you ask someone for directions to a place you've never been. Would you rather have someone go with you who will also be lost if you are, or just have someone give you a verbal description of location? Whose directions would you trust more?
A proper financial service model would reflect this alignment of interests, where the advisor experiences both the ups and the downs along with the client. The advisor will make better decisions, and the client will be better served.