Time for a Structural Change in Retail Investing?

As an employee of one of the big Wall Street firms, I have been thinking a lot about the structure of my industry as a whole.  Clearly, changes are coming of some sort, and for good reason.  While individuals like me who deal directly with clients have it in our own best interest to do well for our clients (our compensation is tied to client portfolio success), that is not the case across the board.

As noted in today’s NY Times in, On Wall Street, Bonuses, Not Profits, Were Real:

“Compensation was flawed top to bottom,” said Lucian A. Bebchuk, a professor at Harvard Law School and an expert on compensation. “The whole organization was responding to distorted incentives.”

Even Wall Streeters concede they were dazzled by the money. To earn bigger bonuses, many traders ignored or played down the risks they took until their bonuses were paid. Their bosses often turned a blind eye because it was in their interest as well.

As the list of scandals and corruption grows and grows (Tech Bubble, Enron, Worldcom, real estate bubble, rating agency incompetence, Madoff, SEC incompetence, investment bank bonuses, etc.), it becomes increasingly difficult to understand why “retail” clients – people like you – would continue to trust your money to the traditional financial services industry.


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