The financial advisory industry has a problem. For years it promoted active management and beating benchmarks. To wit, it is slowly but surely realizing it cannot deliver on those implicit contracts. And to make matters worse, the industry is promoting performance based outcomes when it has no control over the performance or the outcomes. The marketing gurus are going to have to put their thinking caps on and come up with a solution. And this is what they are doing! The solution from what I hear is to redefine success from beating a benchmark to being on track to meet a long term goal and to focus on process. I think the focus on process is a positive (along with tax & estate planning). But the redefinition of success seems to be a fudge or smokescreen for underperformance. Something along the lines of "the greatest trick the Devil ever pulled was convincing the world he didn't exist" translated to "the greatest trick the financial advisory industry ever pulled was convincing investors that underperformance was overperformance" or when in doubt redefine the benchmark.
Ultimately I think the industry will paint itself in a corner again. The irony is that Charlie Ellis has been pointing in the right direction for years (putting asset management outcomes in the context of educated investment counsel). The problem is the industry cannot adopt his suggestions because it means losing a lot of money. This is how deeply entrenched systems work. Vested interests cling to the old ways even as the foundations are eroding all around. Eventually a catastrophic collapse takes place and the foundations are rebuilt anew from the rubble.
No comments:
Post a Comment