Time for all you advisors and your clients to break out the champagne and celebrate. It has taken almost 30 years but it appears that many of the proponents of active management are “throwing in the towel” and searching for new sources of revenue. Thirty years ago, virtually every dollar invested in mutual funds, was managed by Wall Street firms claiming they could “beat the market”. Management fees were high and in most cases you had to pay an 8% commission just to get started.
What follows, are direct quotes from Bloomberg Business Week dated June 27, 2016.
“Top executives at some of the largest fund companies, including Larry Fink at BlackRock and Gregory Johnson at Franklin Resources, are warning that a reckoning is coming. The pain is focused on companies that emphasize active management, picking stocks and bonds in an effort to beat the market.”
“Over the past five years passive funds, attracted a net $1.7 trillion dollars in the U.S., while active funds saw a slight outflow. The active managers haven’t been able to show they deliver a performance edge for their higher fees. In the five years ended in December, only 39% of actively managed equity mutual funds beat their benchmark indexes, according to Morningstar.
“Fink, who runs the world’s largest money manager, said at a conference on May 31 that the shift into indexing will not only continue but will be massive.”
I just wanted to share this with you advisors who have played no small role in bringing this about. You can truly say you’ve made a difference. It was not easy, especially in the beginning, but with the truth on our side, I knew we would win. We have, and I love it.
So what is the Bad News? The “bad news” is the persistence of commissioned driven investment advice and the obvious “conflict of interest”. The “market” showed the failure of active management. A battle Wall Street knew it would eventually lose.
But hiring “salespeople” to provide investment advice is still a very profitable business strategy. It’s just too profitable to let “ethics” get in the way. It’s both sad and shameful. More next week……………..!