Massive Missed Opportunity

A Massive Missed Opportunity

Originally published on Advisor Perspectives, January 9, 2019

For those of us who have been writing about the benefits of passive management for over a decade, recent developments have been heartening. I have never seen so many articles debating whether active management is or isn’t “dead.”

Yet, competition for AUM remains fierce. The asset management industry is not going to surrender easily. It has a massive advertising budget, political clout, and most of the financial media disseminates information that reinforces its business model.

Here are some recent headlines plucked randomly from the website of CNBC:

· Cramer: How to know when it pays to sell in a sell-off.

· Cramer explains the market volatility and why another Great Recession is not in the cards.

· Nearly half of the S&P 500 is in a bear market. Here’s where to hide out.

· Wall Street’s top analysts are sticking by these tech stocks amid the market correction.

It’s sad that some investors rely on the unsupported claims in those articles and implement the “advice” they offer. It’s unlikely they will use RIA fiduciaries (much less evidence-based advisors) to plan on their behalf.

The current strategy

Evidence-based advisors are confronting a well-armed adversary and responding with a water pistol.

The current strategy involves publishing academic articles intended to demonstrate the folly (or “zero sum game”) of active management. These articles are generally well-written. They reach a tiny segment of the investing public but are consumed primarily by other advisors. When this occurs, the authors are simply “preaching to the choir.”

The missed opportunity

Here are some headlines for advertisements that appeared in print, digital, television or radio. Which ones have you seen or heard?

a) Active management is for losers

b) Bear markets devour active managers

c) Slick tricks of active managers

d) None of the above

I’ll reveal the correct answer in a second, but first I want to ask about micro-influence marketing, which is a major trend in social media. Here’s how it’s defined:

Brands partner with individuals with smaller followings on social media to promote products with authentic, visual posts instead of sponsored ads.

Which of these “micro-influencers” have you seen on social media promoting passive management for compensation?

a) Meir Statman

b) Harry Markowitz

c) Sarah Grillo

d) None of the above

If you answered (d) and (d) to the above two questions, you were correct.

Evidence-based RIAs don’t advertise. It’s a massive, missed opportunity.

Why is that?

It used to be the community of RIAs was splintered, with most being smaller one- or two-person firms. These firms didn’t use to have an advertising budget, but that has changed with the recent trend towards consolidation.

Firms like Focus Financial Partners, Hightower, WealthTrust, United Capital, Dynasty Financial Partners, CapTrust Financial Advisors and many others have significant revenues and could easily fund an impactful, multi-channel advertising blitz. It would not just counteract the misleading ads by the asset management industry. Passive management has a wonderful, inspiring, compelling story to tell.

It’s time to tell it.

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