The storied David Swensen, manager of the Yale endowment, has written well (in 'Pioneering Portfolio Management') on the characteristics that investors should look for in fund management counterparties:

"Attractive investment management organisations encourage decisions directed toward creating investment returns, not toward generating fee income for the manager. Such principal-oriented advisers tend to be small, entrepreneurial and independent.. Entrepreneurial capitalism constitutes a behavioural process with three driving forces: innovation, ownership and adaptation. Each characteristic contributes to the core of successful money management organisations."

But the buy side is polarised between institutional heavyweights with heft in assets under management that can only be detrimental to longer term performance, and individuals in boutique firms:

"In selecting external managers, investors attempt to identify individuals committed to placing institutional goals ahead of personal self-interest. Alignment of interest occurs most frequently in independent investment management firms run in an entrepreneurial fashion by energetic, intelligent, ethical professionals."

Or you can choose to take your advice, and investment management, from the big boys. But the big boys may not have your best interests at heart, and they are likely to be pursuing ends (pursuit of asset scale that boosts fee income, for example) wholly at odds with yours. Full service investment houses are likely to be hopelessly conflicted. Invariably acting as both principal and agent, does any full service institution hold fundamental appeal for a rational investor - would you really want to be buying anything that they're selling ? (Anecdotal evidence from the subprime mortgage market alone would suggest that the answer is in the negative.) As John J. Macreedy (Spencer Tracy) declares in 'Bad Day at Black Rock':

"You're not only wrong. You're wrong at the top of your voice."

David Fuller's view I commend the rest of this letter to all investors, and don't miss the opening quote.