Index Funds and Investment Gurus
I'm driving down the highway coming back from a weekend at the beach today and I'm listening to Clark Howard, it could be any of the media money people though Suze Ormand etc. He starts in on the index fund thing and it dawns on me why they do this.
First the media whoures are in competition with us, no brainer aye? So they disparage our profession. Then it offers a way of telling people to invest that is safe for them in this litigious society. If a index fund performs poorly it will always bounce back right? History shows us this right? Then they can point to what ever fund went ass out that was once hot and say look see what the Brainiac fund managers will do to you. Oh and the fees these guys charge will eat all your money, this little ditty in particular is simply a lie.
It's Bullsh*t and it is f**king dishonest. Index funds as an appropriate investment for everyone is criminal and someone should do something about it.
It's irrelevant, but I don't think the Yanks are the right team to use as an analogy here. They pay any price--ie buy "high"--hoping to win, which hasn't achieved the desired results the last 5 seasons)...maybe Billy Beane and the A's--prudently pick good players, "sell" them when they get too expensive," and still do extremely well.
Indexing has a good academic background, but then you have pick the right indexes in the right proportions, know WHY you are so you don't panic when your index loses money, etc...typical media not telling (not KNOWING either) the whole story. The problem we have is charging for PRODUCT while really selling advice...so if we can't offer index funds, we look biased by saying they suck. Luckily ETFs give us an out, particularly in a fee-base account. I have given up trying to reason with people that believe the stuff you're talking about, so I use that route for dem.
Cowboy said: The problem we have is charging for PRODUCT while really selling advice...
Cowboy, again, good sound reasoning that strikes at the heart of the conflicts our industry will have to reconcile.
I appreciate your ability to articulate the whole issue in the above comment. I wish I'd been able to simplify it like that.
Thanks. I don't if it's part of game theory (people's behavior depends on many interacting factors), or exactly where it fits, but a lot of argument people make for the transaction based approach assume clients come to us with a nice clean situation where they are open to rearrange everything to "our process" and we think it HAS to be best for them right now "if they want to work with ME!" For example, if someone goes to just about any Jones broker out less than 10 years with Vanguard Primecap, Dodge and Cox Intl, Dreman High Return, and Hotchkiss and Wiley Small Value for their equity mix...what do you think might happen? Now, I love American Funds, but the above have just as good, if not better records, processes, etc.
So for someone who needs help because they've someone else recommend these great managers but isn't servicing them...and the client doesn't KNOW how good these managers (or care to keep up with them). Well, at EJ (and probably lots of other places) you're just going to have to find some good American, Lord Abbett, and Van Kampen to replace those funds that "I don't get paid on." A client's interest isn't in making sure we get paid a certain amount; yes yes, I know we do need to stay in business. Fee-based aint perfect, but it at least somewhat separates the advice from the product. There are some papers floating out there that contend the evolution toward this separation won't stop....but, I think it will take a looong time. I think it professionalizes the industry, which is good for some of us, not so good for others.