Here we go again.

Pick up your newspaper this morning. The business headlines are screaming about a crackdown on auction-rate securities brokers. Those are the extremely risky debt instruments with long-term maturities that typically reset interest rates through weekly auctions.

The problem Wall Street has run into is twofold. Not only can these be extremely complicated and volatile forms of fixed income, but the market for auction-rate securities has dried up. The ongoing credit crisis started by a meltdown in mortgage-backed securities is spreading to auction-rate markets.

The result is that investors in these complicated debt instruments are stuck. And big financial firms such as UBS and Wachovia Securities are now facing scrutiny by regulators over how they sold these ARS products to investors. According to a front-page story in Friday's Wall Street Journal, UBS is being formally charged by the state of New York with misrepresenting the risks involved with the ARS market.

With the meltdown in mortgages spreading to so many other parts of the economy, isn't it time for the investment management business to wake up? How long will it take advisors to realize that at some point, if things don't change, investors won't keep coming back?

How long can an industry survive that routinely loses its customers billions of dollars through questionable advice and bad products?

Of course, financial management is a booming industry. Although it's feeling the impact of a downturn in banking, advisors continue to make billions of dollars in profits. The result is that many financial advisors still continue to push complicated products with expensive fee structures.

Bigger Picture

But the picture isn't complete unless you also consider the plight of individual investors and the practices of advisors servicing that market. Of course, they're using a more sophisticated mix of financial products with institutional money managers and big pension fund administrators. But with the average investors, most advisors are still big advocates of high-priced actively managed mutual funds.

What is even more ridiculous is that the continued love affair advisors have with star fund managers flies in the face of developments in the market for exchange-traded funds.

Never before has such a powerful tool been available to investment advisors. Using ETFs, advisors can add value through portfolio design, implementation and ongoing management process. ETFs allow an advisor to build a portfolio focusing on those things that have been proven to add value: strategic asset allocation, low fees and systematic rebalancing.

Yet many investment advisors and brokers have been slow to embrace the benefits of ETFs. This comes despite the fact that ETFs are an investment structure that allows the advisor to build and manage extremely sophisticated, institutional strength portfolios at a fraction of the cost of other alternatives. They're simple, transparent, tax-efficient and index-based.

Traditional actively managed mutual funds are by far the most widely held investment structure of all time, with nearly $12 trillion under management. You will find them in 401(k)s, IRAs and taxable accounts for virtually every investor. The problem is that the mutual fund industry extracts billions of dollars of fees from client portfolios and produces mutual funds that, on average, fail to meet their stated benchmark.

What other industry could survive by offering a product that continually produces sub-par results while charging high fees?

To prove the validity of this point, all that must be done is examine the recent history of a few of Wall Street's most infamous blowups.

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