Does My RIA Need Live-Trading Experience? (Part 4)

Today I continue the stream-of-consciousness sidebar that I began in the last post.

In Part 1 I pretty much decided that live-trading experience is not, in general, a necessary criterion for a competent investment adviser (IA).

Coming to mind in support of this realization was my work as a pharmacist. I did not make the medications. Machines in remote locations make the tablets, the suspensions, the creams and ointments, etc. All I know is what medications are best for different conditions. If you bring me a diagnosis (from the MD) then I can recommend the proper medication. This seems quite analogous to an IA [representative–that’s a legal term] completing a personal interview/assessment in order to recommend funds or financial products suitable for client investment. Those products are traded in remote locations (e.g. New York, Chicago) often by machines (computers): just like the manufacturing of medications.

This rationale, in addition to the “agnostic” reason given in Part 1, supports my belief that in general an IA need not have live-trading experience to be competent.

What I think matters more is an investment style that can best suit client needs. A short option premium strategy can generate a higher average return, a lower variability in returns, a lower maximum drawdown, etc., but few IAs have this sort of offering. If you believe this approach is best then the confusion becomes clearer. The confusion arises because live-trading experience is necessary to execute this sort of strategy and this causes two separate arguments–what investment strategy is best and whether life-trading experience is advantageous–to run together into one discussion.