Does My RIA Need Live-Trading Experience? (Part 1)

The question left on the table from my last post is whether live trading experience provides Edge for clients in the market for an investment adviser (IA).

I definitely see a disconnect in the financial industry because so many IAs (or investment adviser representatives–a legal term) do not actually trade: they just sell products. Whether or not this live trading experience provides superior returns remains an open question, though.

I Googled this and e-mailed one person purporting to be an IA with 15 years of trading experience. He responded:

> I’ve been an active day timeframe trader for more than 16
> years, but that is by no means all I do. In a nutshell, I
> manage everything from a long term investment portfolio,
> to positions running anywhere (in trade duration) from a
> few minutes, to a few days, weeks or even months.
>
> As far as an investment adviser trading for him/herself,
> and, I assume, for clients…that is a very tricky
> proposition. I know there are many readers that follow
> my work that DO in fact manage and trade money for
> outside clients, but I have no clue how their results
> measure. There is simply no way for me to know whether
> an investment adviser with an active style has any sort
> of edge over a typical adviser. Some probably do well,
> while many break-even or simply lose.

I this is an outstanding response. So many things in the financial industry cannot or are not measured. Without measurement, they are simply advertising claims. For what I would do, yes: live trading experience is absolutely necessary. For this reason, I could advertise Edge based on my live trading experience. Does this mean live trading experience in general provides an edge over most IAs who focus on sales?

That’s an answer I do not know and, in agnostic fashion, is an answer I’m not sure I ever can know.