In 2008, investors yanked $235 billion from non-money market mutual funds while adding $175 billion to exchange-traded funds. Market share of ETFs compared to non-money market mutual funds has doubled roughly every three years and now, it would appear, is poised to further quicken the pace.

While non-money market mutual funds suffered asset declines of 35% last year, ETF assets experienced only a 13% reduction, according to the Investment Company Institute.

With asset levels at many mutual fund companies standing at one-half to one-third of pre-crisis levels, mutual fund company revenue streams have hit a wall, leaving operations bleeding cash.

This fate is also shared by advisers having soft new asset inflows combined with client portfolios heavily weighted in anything other than cash and Treasury-related securities.

Moving To A New Way To Invest

Despite the massive toxic asset triage under way, what we are currently witnessing is the unsystematic, wholesale dismembering and dismantling of the 20^th-century wirehouse model combined with an accelerated consolidation and downsizing of the mutual fund distribution segment.

Product and product purveyor are, quite absolutely and quite entirely, broken.

Both of these monumental, investor-driven trends were well under way prior to July 2007, but the financial crisis that has since unfolded has served as a crude yet incredibly powerful catalyst to their forward march.

No wirehouse brokerage firm has managed to avoid serious (and for many, life-threatening) damage over the past 18 months. And those that haven't been fully extinguished now find themselves squarely on their knees.

Among those still standing (or kneeling), there are bound to be a few that will still exist five years from now—albeit in a brutally humbled and suitably reduced and narrowed operating form. Big bets gone bad in highly leveraged investment banking operations and proprietary trading books have fully succeeded in hastening the killing of the wirehouse wealth management "goose."

But from there, institutionalized mediocrity (aka "advisor-assisted suicide")—a consequence of entrenched wirehouse cross-selling priorities and related product mills—will, for many (advisors and clients alike), finish the job.

Investors Learn The Hard Way

Investors are learning, of course, to appreciate the importance of both superior product and superior advice.

But, unfortunately for most, they're finding out the hard way.

Good advice doesn't involve picking market tops and bottoms. And good product is low-cost, transparent, tax efficient and consistent in the type of exposure delivered.

Accordingly, among recent lessons learned are that precious little in the way of good advice or good product comes from conflicted, cross-selling advisory machines. And it doesn't include actively managed mutual funds or focusing on advisors behaving as active mutual fund managers on matters of asset allocation.

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