The wealth management practices of the Wall Street firms and big banks are broken. Again.

But first a bit of history. In the 1970s, full-service brokers were compensated largely on commissions. In the 1980s, mutual funds were the rage, complete with sales charges (loads). When no-load companies began taking market share later that decade, Wall Street firms and big banks looked towards more creative offerings like private equity and closed-end funds. By the late 1990s, they marched like lemmings to get in on the tech craze. For their best customers, they would offer a few shares of the latest hot IPO that could be flipped for a hefty profit in matter of days-or hours or minutes.

Then came March of 2000 and that game was up. The next "new new thing" (to use Michael Lewis' line) was hedge funds. These funds promised to earn money in up or down markets-never mind the astronomical fees, limited liquidity or leverage required to produce those eye-popping returns. That worked for a few years-until it reached the point of saturation, with most funds participating in similar trades, resulting in mediocre returns and liquidity traps. By then real estate was in vogue.

Investors couldn't get enough. Then commodities. Then structured products and other "fixed-income substitutes." It's this last iteration that may finally be the straw that breaks the camel's back-if investors are paying attention.

To understand this point, it's important to step back and remember that regardless of which particular investment was the flavor of the month, the common theme that was heard over and over again in the Mahogany-paneled offices of the big investment houses for the past 25 years was that by dividing your assets among many different categories that won't move in the same direction at the same time, you were going to reduce the risk of the overall portfolio.

This premise seemed to have some validity and certainly was appealing to the average investor-until October 2008, when virtually every category got caught in the same downdraft. With one exception that is, high-quality short/intermediate fixed-income investments.

Put another way, the Wall Street wealth management model failed its biggest test. Investors who were told that they were diversified suffered losses of double or triple the magnitude of what they were a told to expect during a tough year.

What went wrong? The fixed-income substitutes pushed by the major investment houses weren't really fixed-income substitutes at all. These fixed-income substitutes took many forms: "low volatility" hedge funds, preferred stocks, asset-backed securities or other structured products, closed-end bond funds, income/mortgage REITS, and master limited partnerships, to name several. There was no shortage of creativity in developing/selling products that allegedly could be substituted for boring high-quality, lower-yielding bonds.

While the defects inherent in each of these vehicles vary, the commonality is that none of them is a substitute for the most important characteristic that investors should by looking for from the fixed-income portion of their portfolio: safety of principal.

Lost in the hand wringing and carnage of the market meltdown of 2008 is the fact that some diversified portfolios of short/intermediate high-quality bonds were actually up slightly (depending on duration and credit quality). You didn't have to be only in CDs and Treasuries to make money in bonds in 2008. Many managers who stayed with high-quality short and intermediate-term municipal bonds also posted positive returns in 2008.

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