If you’ve been paying attention the last 10 years you will likely agree that the role great advisors play in their clients’ lives has changed faster than the jokes of today’s late night talk show hosts. What confounds me are the advisors, or those who provide services to advisors, who cannot recognize the current state.
I recently heard a 25-year veteran in this business say, “In the future, asset management is dead. There is little perceived value in it.” I agree. Don’t get me wrong — I do believe how one invests is very important and critical to their financial future. What I am referring to here is the advisor who acts solely as an asset manager as opposed to providing comprehensive, long-term planning.
I’d like to make two points that I believe are critical for any advisor to consider.
- There will always be investors and advisors who believe they can predict markets, but I don’t believe there has been any proof that there is a system for outguessing the markets consistently. In fact, Bill Sharpe said it perfectly when he said active managers, as a whole, have to under perform evidence-based/passive investors, and it is basic arithmetic1.
- The problem with investing is not usually the asset management, but the investor or advisor overseeing the investments. If you were to compare all investors to just investors with a controlled group of advisors who adhere to an evidence-based investment philosophy and put their value on client behavior management and planning, you will notice a big difference. I recently saw a graphic of how one company had positive net flows into stocks from 2008-2012 (the most recent downturn and correction) while the industry as a whole had negative net outflows. I must assume that whoever is using that company must be doing something different.
My advice to advisors today is to make sure your asset management strategy is based on science and research rather than on speculation and market timing. If it is, you can focus on the things you and your clients can control, like the amount they save and spend, and whether their long-term plan addresses what is most important to them.
Remember that your value isn’t with providing asset management, but helping clients articulate and prioritize the many challenges they must plan for, and then creating — and help keep them focused on — their long-term plan.
For more insights on the current transformation happening in financial services — from product to planning, from information to insights, from having all the answers to asking the right questions — check out Staying Relevant — The Paradox of Advice
1“The Arithmetic of Active Management,” William F. Sharpe, The Financial Analysts’ Journal, Vol. 47, No. 1, January/February 1991, pages 7-9