6. The “broken agency” problem can cost money holders far more than the same problem does in most other industries.   All companies face some form of the principal-agent problem: The chief executive of a public company may be tempted to manage financial results to optimize the short term stock price if a significant portion of her compensation comes from company stock options. In asset management, the principal-agent problem is exacerbated by the presence of so many conflicted intermediaries.  For example, an individual allocator is often motivated to allocate to the most popular fund or type of investment in which her peers are investing, to protect for career risk.  If an allocator hires a known player, underperformance will not cause the employee’s judgement to be questioned.  The resulting herd mentality hurts innovation and leads to suboptimal returns.