Alternatives: Still A Cottage Industry
In regard to, "An Alternative World," (Financial Advisor, April 2010), it's illuminating to be reminded of how little understood alternatives still are despite their long-tenured outperformance history. As the article states, "Investors first need to determine what the heck alternative investments are. There isn't a consistent definition for this space." To be sure, many investors still think of solar turbines and windmills when they hear the phrase "alternative investments."

But as alternatives become more accessible and interest grows, there is a definite need for more education. It's painfully clear that despite last year's financial market recovery, anyone invested in straight stocks over the last decade made no money. From August 1999 to September 2009, a $1,000 investment in the stock market yielded a grand total return of $958. From October 2007 to the end of last year, it was even worse; the same $1,000 would be worth about $750 today. Under a different guise, one might call that deflation. Others have called it "the lost decade."

The reason there is a knowledge gap is that, until relatively recently, alternative investments were largely inaccessible for investors outside of very large institutions and ultra-high-net-worth individuals. And despite growth in the space, it is still a cottage industry. Today, the entire hedge fund universe is about $1.4 trillion-but even that number pales in comparison to the approximately $30 trillion invested in traditional assets.

Now, consider that every five to ten years the financial markets seem to face some sort of crisis that drives up volatility. Many investment plan strategies simply aren't designed to do well in these environments. Alternatives offer a way to invest in a strategy that is not correlated to the markets. In fact, as measured by the Altegris 40 index, alternatives have outperformed traditional benchmarks for the past two-, five- and ten-year periods. Even in tough years, alternatives provide a compelling reason for advisors and investors to get much better acquainted with them. The HFRI fund weighted composite index was down 19% in 2008 versus more than -30% for the broader equities market. Assuming this keeps up, it shouldn't be too long before alternatives really do become the new norm-not to mention much more understood.

Jon Sundt, President & CEO
La Jolla, California

Clients Should Come First
Insurance companies and big brokerages wave their wallets in Washington and throw consumers under the bus!

The "Restoring American Financial Stability Act of 2010" was passed recently by the Senate Committee on Banking, Housing, and Urban Affairs. The legislation left out a key detail. It allows financial salespeople to continue to put their own self-interest and the good of their company above their clients.

Prior to the financial mess in 2008, the members of the Financial Planning Coalition began calling for a fiduciary standard for investment advisors and financial planners. This was met by major opposition from firms whose employees are commission-based financial salesmen. The fiduciary standard would require these folks to act in the best interest of their clients at all times. Imagine that! Consumers deserve this basic protection.
Fiduciaries live up to a few simple standards:

1. A client's best interest is their first priority ... by federal law.
2. They seek the best investments and the best prices for their clients. When comparing equal investments, the one with the lowest fee is best for the client.
3. Fiduciaries understand that they cannot control the market; instead they focus on providing impartial and unbiased consultative advice.
4. They offer full disclosure of the fees they charge and the payments they accept. Consumers understand how their fiduciary advisor is paid. No hidden fees.
5. They offer full disclosure of conflicts of interest. Consumers are fully aware of relationships that may benefit the advisor.
Consumers can educate themselves on the fiduciary standard. The terms, "fiduciary financial planner" and "fiduciary investment advisor" should not be an oxymoron. Professionals should always do what is in their client's best interest ... always!

Adam Miller, CFP
ElderAdo Financial
Montrose, Colo.