Roadblock ID

Taking a few steps back can better help me to identify what still blocks my entry into the wealth management arena.

In November 2017, I called an adviser working for an LPL Financial affiliated firm. I had spoken with a recruiter two weeks earlier who did not provide much information. I wanted to find out more about logistics. Would I be able to work remotely? Would I have to find my own clients? Would I be able to trade options?

Ten minutes was all it took. He believed naked puts (NP) can pay off handsomely and get hurt severely based on his limited trading experience. As have so many others, he congratulated me on my decade of success in leaving pharmacy to trade options for a living. He said LPL is more conservative, though, and would probably not be the place for me. I asked where else I might look and he said this wasn’t his specialty and he really had no recommendations.

Another dead end.

If only as good PR and to engender trust, I think a number of advisory firms and broker-dealers that service non-accredited investors ban derivatives altogether. Derivatives do, after all, have a nasty reputation in the financial history of this country (another example here).

NPs involve great theoretical risk. Since 2001, NP performance has been far superior to that of long shares (i.e. max drawdown 3.7x smaller). Nevertheless, the leveraged approach could theoretically go bust sooner than long shares in the event of a market decline more severe than the 2008 financial crisis.

To be clear, the great theoretical risk with which I currently eat and sleep could be realized in the event of a surprise market crash of huge magnitude. Anything short of this should substantiate NPs as having less risk than long shares, but I would willingly discuss the worst case scenario with potential clients. This could make for a lousy sales pitch.

How do I resolve carrying such great theoretical risk and managing a strategy I believe to be better than stock?

The answer is high net worth (HNW) individuals (i.e. accredited investors). I alluded to this in a previous footnote. Recent experience has suggested my NP strategy be traded with an account no smaller than $250,000. I think strategies like this should be allocated up to 20% of an investor’s total net worth because of their potential to bust sooner than unleveraged alternatives. A HNW individual is likely to meet these criteria whereas non-accredited investors are not.*

I am hard-pressed to find work with an established wealth management firm, which might be my best opportunity to connect with HNW individuals. I have no relevant, credentialed financial education. I have no previous industry experience. I am intent on remaining focused on maximizing investment performance, which excludes me from providing other advisory services. I would insist on having the freedom to manage accounts my way [trading options]. I might insist on working remotely.

If I can’t work for an existing firm then I could take the leap and launch my own. I discussed this in detail here.

On a 2017 Shark Tank episode, Barbara Corcoran explained precisely what has kept me on the sidelines for over two years:

     > It’s very hard to invest in a business where you don’t see
     > a clear road to the finish line. Because I can’t see a way
     > to get my money back, I’m out.

If I believe in myself enough then maybe the answer is to create a business plan, throw down the stacks to launch an IA, and to learn on the fly. I won’t find clients overnight but if I can secure one new $250,000 account per month then I could have $10M under management in four years (assuming 100% retention). That’s not half bad.

And maybe, with a partner who has industry experience with software/back-end technology along with sales and presentation know-how, I would progress even faster.


* The implication is that losing this 20% would still preserve 80% of the investor’s total net worth. In reality, some of the
   other 80% would probably be invested in vehicles that would also lose significantly in the event of a market crash. While
   I have computed Sharpe ratio, I have never computed correlation between my core strategy and its benchmark.