The top conversations on APViewpoint last week were started by Scott MacKillop, Abdur Nimeri and Michael Edesess. They generated thoughtful discussion with wide ranging opinions on: the limits to our investment knowledge; the next generation of ESG investing; and whether Wall Street “rips off” your clients.

Scott MacKillop’s Value, Growth and the Limits of Our Investment Knowledge Taming the Uncertainty Monster provoked 34 comments as it continued into its second week of activity. Members continued to discuss the prominence of over-confidence in the investment industry, and debated whether advisors are using too much financial jargon when they explain their investment strategies to clients. Some APViewpoint members argued that financial terms with obscure meanings are an ineffective way to explain investment strategies. Those terms tend to overemphasize the benefits of their methods. For example, advisors using factor-based strategies tend to use terms like “value premium” and “diversification,” which can be defined in multiple ways. They posited that advisors using these concepts to explain the merits of their strategy can inadvertently lead clients to assume risk levels are lower than they actually are, and cause them to forget that there’s “no free lunch.” However, others maintained that if advisors fully educate their clients and specify that their allocations are based on estimates, they can clearly explain their beliefs and strategies to clients. Ultimately, members concluded that regardless of whether an advisor uses an active or passive investment strategy, they should strive to communicate with clients in a way that helps them understand that risk and uncertainty is always involved.

APViewpoint hosted another well-attended webinar on September 13, The Next Generation of ESG Investing, about environmental, social and governance (ESG) investment solutions. In this webinar, FlexShares senior investment strategist Abdur Nimeri explained how the ESG investment landscape has changed dramatically in recent years. Nimeri provided insights to help advisors understand the profile of today’s ESG investors, and he explained that investor interest in ESG investment solutions is accelerating. Nimeri explained that U.S. assets invested according to ESG principles increased by 76% from 2012 to 2014, and that consequently there has been an increase in ESG investment products. He discussed the ways an ESG orientation can affect the construction of a portfolio, and suggested that advisors be wary of products characterized by inadequate diversification and skewed returns. Nimeri reviewed the benefits of using Flexshares products to impart ESG principles into client portfolios, explaining that their “integration approach” allows asset managers to develop and apply systematic investment strategies to evaluate company ESG key performance indicators (KPIs) that significantly impact risk/return with strong predictability. Nimeri will be answering questions about his presentation in this follow up conversation, and a replay of the webinar can be viewed here.

Michael Edesess’ Does Wall Street Rip Off Your Clients? received nine comments from advisors widely agreeing with his claim that there are far too many outrageous practices on Wall Street designed to “rip off” investors. Members identified products and practices that are the biggest drivers of big bonuses and salaries in the financial industries, and they discussed possible regulatory changes that could help address these problems. Advisors contended that outrageous profits are partly driven by complex financial instruments like variable annuities and structured notes because they are very difficult to analyze and hide excessive fees. Moreover, members said that Wall Street gets huge gains by pushing mutual fund products with high expense ratios. While advisors cited concerns about the effectiveness of government regulation in the financial industry, they maintained that some products need to be outlawed because they are “just thievery in disguise.”

APViewpoint will be hosting its next CE eligible webinar, Adaptive Asset Allocation: A Dynamic Strategy for Good Times and Bad, on Thursday, September 22, at 4:15 pm ET. In this presentation, ReSolve Asset Management CEO Adam Butler will explain why skilled investors have a greater opportunity to profit from active asset allocation than traditional security selection. He will show advisors how they can take advantage of pricing anomalies created by unskilled ETF investors, and he will provide an overview of active multi-asset "factor" strategies like Adaptive Asset Allocation. You can register for the upcoming webinar here.

Marianne Brunet is a financial markets analyst with Advisor Perspectives.