Behind the Yield

Behind the Yield: March 19, 2026

Four decades. Four products. One playbook.

By Charles Urquhart, CFA · March 19, 2026

𝗙𝗼𝘂𝗿 𝗱𝗲𝗰𝗮𝗱𝗲𝘀. 𝗙𝗼𝘂𝗿 𝗽𝗿𝗼𝗱𝘂𝗰𝘁𝘀. 𝗢𝗻𝗲 𝗽𝗹𝗮𝘆𝗯𝗼𝗼𝗸.

Every decade or so, the Street introduces a product that will change everything about investing for the retail investor.

Finally, they will have access to the returns that the institutional and the ultra-wealthy classes of investors continue to rake in.

The product launches with a compelling pitch. The brochures are glossy. The conferences are well catered. And the sales force gets paid handsomely to believe every word of it.

I have watched this play out four times in thirty years on institutional fixed income desks.

Here is the record.

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🔹 𝗔𝗰𝘁 𝗢𝗻𝗲: 𝗩𝗮𝗿𝗶𝗮𝗯𝗹𝗲 𝗔𝗻𝗻𝘂𝗶𝘁𝗶𝗲𝘀 | 1990s to early 2000s

A genuinely useful product for a specific group of investors.

The distribution house promised that their product would offer investors protection from losing their life's savings and would guarantee them income for the rest of their lives.

Fee structures are less than enticing for the retail investor.

📌 Upfront commissions: 6 to 8 percent

📌 Surrender charges: investors commit to the product for 7 to 10 years

📌 Annual all-in fees: 3 to 4 percent per year

The fees are so disproportionate that investors pay 3 to 4 percent per year to a product that protects them from losing any money.

The SEC and FINRA are not amused. They devote the better part of a decade to this.

Act One ends not with the company deciding to stop doing this.

It was next time make it harder to read.

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🔹 𝗔𝗰𝘁 𝗧𝘄𝗼: 𝗡𝗼𝗻-𝗧𝗿𝗮𝗱𝗲𝗱 𝗥𝗘𝗜𝗧𝘀 | 2005 to 2015

Promised to give retail investors access to real estate investments without the effort of managing real estate and the expenses of real estate ownership.

This product and the distribution channel that promotes it raised billions of dollars.

The fund managers, the financial advisors, and the distributors all benefit mightily from this effort.

The investor gets left behind.

In 2015, Henderson, Mallett and McCann published what would become the most comprehensive study of non-traded REIT fund performance. 81 funds evaluated across a ten-year period.

📌 Average upfront fees: 13.2 percent — nearly all going to the distribution channel

📌 Average annual return to investors: 4.0 percent

📌 Return of traded REITs over the same period: 11.3 percent

📌 69 of 81 underperformed

📌 Total investor shortfall: $45.5 billion

The researchers noted that the sample of funds evaluated was biased towards the most successful. The real number was significantly worse.

$45.5 billion is not a typo. That is a B.

You would think this would cause some reflection within the industry.

Instead, the industry responded with the next product innovation.

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🔹 𝗔𝗰𝘁 𝗧𝗵𝗿𝗲𝗲: 𝗦𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲𝗱 𝗡𝗼𝘁𝗲𝘀 | 2000s to 2010s

While non-traded REITs were garnering significant notoriety, a similar product was being introduced a few steps down the road.

Structured notes allow retail investors access to many of the same investment strategies that institutional investors and traders have been employing for years.

The product is complex to the point of impossible to evaluate for retail investors.

📌 Manufacturing bank keeps the spread

📌 Distributing brokerage keeps the sales credit

📌 Financial advisor keeps the commission

📌 Retail investor gets a product they cannot price themselves, cannot exit without penalty, and cannot compare to anything else in their portfolio

When asked, the structured note industry had a ready answer.

The complexity is part of the premium. The firm is compensating them for not understanding the product.

After thirty years on the institutional fixed income desks at Lehman Brothers, Fidelity Investments, and Tradeweb, I can tell you that this is the most elegant way of describing a conflict of interest. I have encountered a few.

The SEC stepped in in 2012. By then the industry had adapted.

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🔹 𝗔𝗰𝘁 𝗙𝗼𝘂𝗿: 𝗡𝗼𝗻-𝗧𝗿𝗮𝗱𝗲𝗱 𝗕𝗗𝗖𝘀 | 2020 to present

Last month I published a detailed fee analysis of what would happen to a $100,000 investment in a non-traded BDC. Now I am doing it again because this is another worthy read.

Private credit is an institutional asset class that allows investors to lend to middle market companies.

This is how the fee structure works.

📌 Day 1: $4,100 gone — selling commission, organizational costs, subscription fee

📌 Years 1 to 5: $11,500 more — management fee, distribution fee, administrative costs — 2.3 percent annually

📌 Exit: $3,950 — performance fee and redemption charges

📌 Total extracted from a $100,000 investment with a 10 percent gross return: $20,550

📌 Percentage of gross return captured by fees: 34 percent

This assumes that the fund allows your client to exit.

In practice, most non-traded BDCs will limit redemptions to 5 percent of total fund assets per quarter. That means the last investor in line waits over two years for their investment to be returned.

Blue Owl gated $1.6 billion in February 2026.

In March 2026, Morgan Stanley, Cliffwater, and BlackRock all gated in the same news cycle.

Three unrelated firms. One wall. Two weeks.

The distribution chain collected their fees on the way in.

The gate is not their problem.

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𝗧𝗵𝗲 𝗣𝗮𝘁𝘁𝗲𝗿𝗻

I have seen this play out four times. Five if you count auction rate securities but that's a whole different newsletter.

The pattern is remarkably consistent. The idea is to take a proven product and create a retail-friendly package for it. Then, when markets turn and investors want their money back, you discover the true nature of this product.

The people at the head of this machine believe in it. They put something in the book that would pass regulatory compliance and be in the prospectus. I have met these people. Most of them are fine.

The problem is that fine people will produce the same outcome given the incentive structure.

$45.5 billion in one decade. $20,550 out of a $100,000 investment in the next one.

I find it interesting that the word they keep using is democratization. I don't think they are lying. I think some of them truly believe it. That's what bothers me most.

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Before you recommend any alternative product to a client, ask yourself three questions.

❓ Who gets paid if this goes up?

❓ Who gets paid if this goes down?

❓ Who gets paid when your client wants their money back?

If it's the same set of people each time, you have found the machine.

👇 Sources and assumptions in the first comment.