Options Are an Effective Risk Mitigation Tool - Advisor Eduction Needed

Like any responsible investment approach options are for specific problem-solving and a segment of the advisors and client market.  There is no one-size-fit-all.

It’s good to see TD Ameritrade raising the resource for advisors.  

As marketers, however, we also see that much of the current and prior sales, communications and marketing of options has been wrong-footed and often off-putting.  

We find TD Ameritrade to be one of the best advocates for the responsible advisor, RIAs and TPAs and their clients.  We also promote TD Ameritrade as one of the most stable custodians because of their close relationship with Toronto Dominion Bank.

Is there a better “counter-party” out there right now?

Let’s remember, that gobally, it was the Canadian banks that we’re the most prudent and well run.  

In our research, we have noticed that since ‘07, many advisors prudently using options as a way to dampen risk have been successful through the worst of the drops and also during the recent run up.

1000 point one-day drops may not be so rare any more!  

We propose that increased and dramatic volatility is now a structural characteristic of the global financial system so new tools and approaches are needed to cope.

In addition, the growing challenge of funding retirement for the Baby Boomers also demands new strategies for clients and advisors.  

Of course, the most extreme and wrong-headed use of leverage and options - two DIFFERENT matters, BTW - get all the headlines and are effctive in scaring folks.

The reality of options use in a portfolio is more benign and much less drama.  we have not really seen or heard of any other than (very) successful, conservative, asset-protection usage of options - except in the headlines!

Being in Chicago, the CME has always been one of the most responsible, sharpest, best run and best communicating industry groups in financial services.  

We are developing proprietary tools and approaches to add options to the advisor and client toolkit.  They work!

Here is an excerpt from the article in Investment News:

TD’s Bradley to advisers: Ignore options at your own peril

By Hilary Johnson May 21, 2010

Advisers need to boost their use of options - or possibly risk losing business to larger rivals.

In fact, advisers have more than doubled their use of options over the past two years, TD Ameritrade data show.   He said the derivatives can help advisers generate more income, boost returns for clients and protect their portfolios on the downside, as well as compete more effectively against broker-dealers. “The pitch needs to be expanded beyond asset allocation,” he said. “You need to show how you are smarter and better than the folks down the street.”

While touting the virtues of options, Mr. Bradley also sounded a warning about their use. “You need to educate yourself on this,” he told attendees, noting that the dangers of getting something wrong are serious.

"Every major error that I’ve seen since I’ve been in this business has had something to do with options," he said. "It’s very easy to make a mistake - a big mistake. You have to be careful, you have to know what you’re doing."

Mr. Bradley, of course, has an interest in promoting both the potential - and potential perils - of options.   In June, parent TD Ameritrade Holding Corp. acquired thinkorswim Inc., an online brokerage that specializes in options trading.  The latter also provides online investor education services, and plans soon to start rolling out modules aimed at educating advisers about the use of options. That rollout should start this summer.

TD’s Bradley to advisers: Ignore options at your own peril By Hilary Johnson May 21, 2010

Advisers need to boost their use of options - or possibly risk losing business to larger rivals.

In fact, advisers have more than doubled their use of options over the past two years, TD Ameritrade data show.   He said the derivatives can help advisers generate more income, boost returns for clients and protect their portfolios on the downside, as well as compete more effectively against broker-dealers. “The pitch needs to be expanded beyond asset allocation,” he said. “You need to show how you are smarter and better than the folks down the street.”

While touting the virtues of options, Mr. Bradley also sounded a warning about their use. “You need to educate yourself on this,” he told attendees, noting that the dangers of getting something wrong are serious.

"Every major error that I’ve seen since I’ve been in this business has had something to do with options," he said. "It’s very easy to make a mistake - a big mistake. You have to be careful, you have to know what you’re doing."

Mr. Bradley, of course, has an interest in promoting both the potential - and potential perils - of options.   In June, parent TD Ameritrade Holding Corp. acquired thinkorswim Inc., an online brokerage that specializes in options trading.  The latter also provides online investor education services, and plans soon to start rolling out modules aimed at educating advisers about the use of options. That rollout should start this summer.