Over the past few decades, I have watched the financial industry change. Some parts have evolved quite slowly, while others shift rapidly. But I am always amazed at how some business models manage to hang on despite overwhelming proof of their lack of purpose or value added.

Some parts of the investment world exist simply because people don’t know better. The information is out there, but it is obscured by a relentless parade of advertising, promotion and marketing. The truth gets lost behind a smokescreen of noise and deception. Indeed, there are increasing numbers of people who are employed for just that purpose.

Ignorance: It’s a job creator.

But rather than merely complain, what if we take a look at the parts of the financial industry that don't create value.

Fund of funds: I have been critical of hedge funds that charge too much for the privilege of failing to deliver alpha, or market-beating returns. But what should we make of the fund of funds that charge an additional fee for the privilege of selecting underperforming hedge funds for investors? However they get paid -- a layered fee on top of other fees, or directly from the hedge fund -- they create conflicts of interest and/or drags on returns. How these continue to exist is beyond my comprehension.

David Fuller's view

While I regard this as a helpful article, particularly for inexperienced investors, I am surprised that Barry Ritholtz did not mention fear.

Fear sells.  Some of the most marketable pundits at big financial conferences regularly terrify delegates with messages of portfolio hellfire and damnation.  Prophets of doom are often regarded as more insightful by crowds than long-term bulls, even though stock markets go up far more than they go down, with the help of inflation, population increases, GDP growth and technological innovation. 

Apparently, the conviction of serial bears satisfies an inner need for some of us, just like old time religion.