In the 1980s, limited partnerships were the investment structure of the day. Investors were sold partnerships that invested in things like oil and gas, real estate, equipment and aircraft leasing, cable television, movie productions and cattle feeding. Regardless of the investment, all limited partnerships had several things in common: high front-end commissions, huge ongoing management fees, virtually no liquidity and questionable investment merit.

At the height of the limited partnership debacle, the investment management industry was reaping huge profits from their sales. By the mid-1990s, however, investor losses in limited partnerships were in the billions of dollars.

Next came the government-plus funds and the option income funds. Both were heavily marketed mutual fund concepts that offered investors a way to earn a higher yield without taking additional risk. Investors were led to believe that their government-plus and option income funds were a safe way to earn high dividends, but soon found out that they were taking far more risk than they realized.

Again, investors ended up holding the bag.

At the height of the technology bubble in the late 1990s, most investors had no idea how risky their portfolios were, and we as an industry did very little to educate them. Instead, the industry kept rolling out technology IPOs of questionable merit, we offered mutual funds that were narrowly focused and far riskier than investors realized, and we moved away from basic principles of asset allocation and diversification.

Again, when it was all over, investors had lost billions of dollars and the investment management industry was diminished.

No Finger-Pointing

The point of examining some of the worst moments in the history of the investment management industry isn't to place blame. The goal here is to change the way advisors think about what they offer to customers.

The investment management industry is entering a defining moment for several reasons. Information has never been so readily and easily available. The next generation of investors, our future customers, have grown up doing their own research and learning the markets. They know the Internet like the back of their hand and know how to use it to get information.

These investors will be less dependent on financial planners for information and ideas. If advisors are going to capture new business, they need to do it with superior ideas and strategies—not the fund of the month.

Investment management is becoming more transparent. As it does, advisors have to offer clients greater transparency in fees, performance and service.

ETFs allow this industry to add value to the portfolio management process and capture more assets by addressing many of the problems that have plagued Wall Street over the years.

When I first entered this industry, investors needed to call a broker to access information about the markets. The only way to get a quote during the day was through your broker. There was no such thing as 24-hour financial news, the Internet or investor chat rooms.

Dynamic shifts in technology have placed more power in the hands of investors. If advisors don't adapt and provide more thoughtful portfolios and a responsible fee structure, they're going to have trouble surviving a rapidly changing marketplace.

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