Retail Investment Decisions

There as been an increasingly interesting discussion about how retail investment is changing. Leigh Drogen (one of the guys behind Estimize), Josh Brown (Stocktwits blogger), and now TechCrunch posted a peice last week from Nick Shalek. Everyone is debating the disruption of retail investing from the likes of Wealthfront, Betterment, FutureAdvisor, etc. I have looked at all of the platforms in the past and they seem to do a good job matching the capabilities of the average broker out there. Go work with an “advisor” from Morgan Stanley and they’ll walk through all of the same risk profiling for the person looking to invest their money and then kindly recommend a nice Morgan Stanley fund that matches the profile.

I haven’t exactly been shy about how crappy a deal this kind of investment advice is or how it contributes to people losing money. Nick Shalek makes some assumptions in his techcrunch peice that these “advisors” are the same as all wealth managers out there and that websites will replace the whole lot of them. The assumption is poor because a quality Registered Investment Advisor is not the same as a broker at Morgan Stanley. The RIA is worried about making you money and protecting your assets while the broker is worried about selling you the funds at Morgan Stanley.

Josh Brown argues a bunch about the difference between brokers and RIAs but doesn’t exactly come out and say that these websites are great for replacing brokers vs. RIAs. Granted, he is a little biased (as a RIA)… but I am not and think he makes some quality points. Most people that I talk to who are high net worth individuals also want a personal touch and a person to talk to about markets vs. “just 2% per year”.

In a similar veign Leigh Drogen argues against the sites as being incredibly valuable, but takes a much better approach. His argument is that the advisor sites are based on flawed ideas (flawed ideas that still bring in money) and that because of this basis they will remain difficult businesses to be in. This is an interesting insight because it also means that one could create software based on less flawed or better ideas and have a better company/product to offer.

Of course – I think most retail investors would be better off with picking some ETFs, buying some quality dividend paying stocks (and selling covered calls against them), or if they must pay someone pay a quality RIA. This is hard advice for most to hear though especially with all the hype around picking stocks that is put into commercials from e-trade and the media. If you are feeling anxious to pick some stocks and make investment decisions on a regular basis after getting the latest economic news from CNBC, you should watch this brief interview with Eddy Elfenbein…