Option Fanatic, RIA (Part 8)

In the last post, I discussed some pros and cons to trading others’ accounts in a discretionary manner rather than having direct access to their funds to place in a tradable account that I manage.

I love the idea of not having direct access to clients’ funds. By maintaining control of their own accounts, clients would always be able to see how much money they have. I would not be running a Ponzi scheme or Madoff fraud where I take possession of funds leaving only my word to report investment performance. They would be able to see in real-time, online, how their accounts are doing. They would still get monthly statements from their brokerage–not from me or my company.

And yet–the prospect of offering complete transparency bothers me somewhat because others may copy it. I will be the first to say there is nothing new or unique to my trading strategy. The only thing “proprietary” may be that I understand it so well. That understanding comes from hundreds of hours spent backtesting and through my years of live trading experience. I also understand it through the thousands of hours I have spent to learn and understand options. None of this should be a big deal to financial professionals who also do this full-time.

Maybe I’m letting too much paranoia get to me. My trading strategy will suffer losses. If the losses occur sooner rather than later then clients probably will not be as eager to fire me and do it themselves (they may even choose to quit altogether and find another investment adviser). If the losses occur later rather than sooner then clients may think it simple enough and leave me to try it on their own. This may bite them hard in the rear, though, because when those losses happen they will have no experience with managing them. I strongly believe that in tough market conditions I’m going to do better than someone with little-to-no options trading experience.

I’ll talk a bit more about this transparency in the next post.