There Is a Secret That Wall Street Doesn’t Want You to Know…

June 7, 2017  |  

There Is a Secret That Wall Street Doesn’t Want You to Know…

Wall Street’s Secret? “Where there is mystery there is margin”.

The more the financiers of Wall Street can make investing sound complex and mysterious, the more they can promote their mysterious high-margin solutions. The greater their margins, the greater their profits. Now don’t get me wrong. I have no problem with anyone earning profits. Profits are at the core of capitalism’s engine. However, as a buyer of financial services, it pays to be very careful about where you are investing your hard-earned wealth.

Some of the most egregious products sold to investors are hedge funds, as well as hedge fund “fund of funds,” venture capital pools and variable annuities. In my experience, these products are mysterious by design. They are also expensive (generally charging 2 percent of the account value per year PLUS 20 percent of profits earned). That’s right, 20 percent of the profits on top of their fees–and their results are generally sub-par. In addition, there is substantial evidence to suggest that the results generated by hedge funds and related “mysterious” products aren’t worth their costs. Other than that, they are great! If you need more convincing, or if you’re interested in reading more about the subject, I recommend Simon Lack’s book The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True.

Perhaps, it’s no coincidence that hedge funds and related products are most often sold by investment professionals who are not fiduciaries. In short, these so-called professionals do not work for the client. Instead, they work for the firm that is promoting the product. That’s a huge difference because it makes the client simply a distribution channel for the products they’re selling. No rational investor or saver wants to be thought of simply as a product distribution channel. Don’t fall into that trap. It can be very expensive and it won’t get you to your financial goals.

Real world example

We once helped a prospective client save more than $100,000 a year in expenses simply by identifying the costs he was paying for esoteric investment products and by proposing solutions that maintained the same portfolio characteristics he wanted from the complex products–but at a much-reduced cost.


In the vast majority of cases, when we evaluate a portfolio for a prospective client who owns complex investment products, we find that we can build the same type of portfolio, with much lower costs, by using straightforward low-cost index funds and other passively managed funds. That may sound boring to some, but it is a highly effective approach that has stood the test of time.

Key Takeaways

  • Always make sure you are treated as a valued client—not as a product distribution channel.
  • Hedge funds, venture capital pools, and variable annuities are designed to sound mysterious and complex. They’re more expensive than plain vanilla index funds and often underperform.
  • Research confirms that “boring” passively managed funds are highly effective for getting you to your financial goals—and save you money every step of the way.



Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen or experience.  Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements. All statements other than statements of historical fact are opinions and/or forward- looking statements (including words such as “believe,” “estimate,” “anticipate,” “ may,” “will,” “should,” and “expect”). Although we believe that the beliefs and expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such beliefs and expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements. Historical performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss of income and/or principal to the investor.  Investment process, strategies, philosophies, allocations and other parameters are current as of the date indicated and are subject to change without prior notice. Nothing in this communication is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational and illustrative purposes. 

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About Chas Boinske

Charles P. Boinske, CFA, is a 30 year investment management veteran overseeing the strategic direction and portfolio management process for Independence Advisors, LLC. Have a question for Charles? CLICK HERE TO ASK CHARLES

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