You can't "know better" when the risk is deliberately obfuscated in millions of pages of paper.
But even if it was all documented, we are not talking about millions of pages of paper. A typical documentation for one of these structures is 200-500 pages, of which a lot is mostly irrelevant. An investor taking a significant position in one of these structures ought to read the relevant parts. But even highly paid professionals can be lazy too.
Some token measures like deferred bonuses or long vesting stock options have been done, but ultimately this just pushed out the horizon a bit. So you have to take care no to be part of a cockup in 5 years instead of 1 year.
They are often not particularly skilled either, as those who can see through the game are on the other side of the trade. Working at a pension fund is not a sexy or exciting proposition by any measure, so talent tends to go elsewhere.
It's the same situation as bright researchers going to finance where they get paid multiples of what they'd earn in their own field.
Once you sign your soul to the devil, it is very difficult to get out. I'm speaking from experience.
Https://www.reuters.com/article/us-intervalfunds-loans/new-interval-funds-offer-alternative-investments-to-retail-investors-idUSKBN1IC290
https://www.bloomberg.com/opinion/articles/2018-07-10/clos-h...
https://ftalphaville.ft.com/2018/11/20/1542706123000/Who-s-b...
They look something like this...think of it as a set of rules for what the manager does with your money:
1) We invest you stocks/bonds rated <N> and above
2) We exit positions under <XYZ> circumstances
3) We enter positions under <ABC> circumstances
4) Past performance by following rules 1-3 is N%
No one failed to read these in the past, instead they focused on the potential profit, which blinded them to the potential downside. This is an investing 101 lesson, that continues to be taught to money managers each time their profit chasing occludes their risk management.
If you, a regular working class citizen, were burned by this(perhaps in your 401k), then it's worth reading the prospectus your fund manager sent you. When you see the list of funds included in your fund, you should have received a prospectus for each of those as well. Look for which funds make up the majority of your funds holdings, and read those prospectuses. If you find(and are uncomfortable with) one of those funds being a triple-leveraged ETF backed by 30-year mortgages, then you should talk to your fund manager about that.
If you ask me, they are the greedy party.
Part of the impetus for the 2007 crash was that investment companies like AIG were making complicated and obscure financial instruments that hid lots of risk, while also being the agency everybody looked to to grade the risk of financial instruments. They rated their own mortgage debt products as low-risk based on fraudulent analysis.