Not All Financial Advisors are Created Equal

Stephen Todd Walker

Chapter 2 in Understanding Alternative Investments, 2014, pp 43-50 from Palgrave Macmillan

Abstract: Abstract A lot has changed in finance since the Great Recession, but the vast majority of financial advisors and wealth managers appear to not understand alternative investments and yet recommend them to clients. Buyer, beware! A study based on surveys amongst 1,643 retail investment advisors called “2011 Advisor Brandscape” that was done by Cambridge, Mass.-based Cogent Research showed that 78 percent of all retail advisors (primarily independent advisors) now allocate an average of 11 percent of their book to alternatives.1 Investors that receive recommendations from advisors with little training or knowledge about alternative investments is a case of the blind leading the blind. In my opinion, such ignorance amongst financial advisors presents a moral hazard. If a consultant or financial advisor appears to know little about alternative investments, a red flag should go up. My advice is to not walk. Run. At the very minimum, ask how many years’ experience they have with alternative investments, which ones they have worked with, and what professional training or degrees they have had to make them an expert. I would not take lessons from someone claiming to be a surf instructor who has never surfed before. Also, ask if they ever bought alternative investments themselves. A cook that refuses to taste their own cooking is not a cook.

Keywords: Mutual Fund; Hedge Fund; Credit Default Swap; Great Recession; Asset Allocation (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-37019-8_3

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DOI: 10.1057/9781137370198_3

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