The business of managing other people’s money is being commoditised. Investors are starting to see that the emperor has no clothes!
Take the time to read this wonderful article in the Economist:
I have been arguing this point for the last 20 years to anyone who will listen – Portfolios are commodities, so why pay high fees to advisors who can’t consistently beat an index fund.
The data is overwhelming: net of expenses, it is nearly impossible to beat an index fund over time.
Although this is not new news, John Bogle founded Vanguard 40 years ago based on the idea that investors cant beat indexes so why not own the index!
This article does a nice job of articulating the reasons why the environment is changing.
A big reason is that investors are doing the math: many advisers charge clients 1% or more on the value of assets managed. When one calculates the fee, and the time spent with the adviser, the hourly rate equates to that of the highest paid lawyers or surgeons. Then, compared to the after fees return, you would have been better in an index fund.
That doesn’t mean advisers do not add value. A good adviser will help you invest according to your need and risk. Then manage tax exposure, fees and your behavior – that desire to run from your plan during bad times and sell low. But there is no reason to pay more than .25% to .50% for those services.