Why The Investment Advice Industry Stinks

I am passionate about what I do, and I am glad that I bent my career away from economics and towards becoming a money manager. But the ‘advice industry’ as it is now called drives me nuts. Perusing the industry magazines that arrive for free in our mailbox is completely depressing. While a few articles focus on investment ideas – usually the latest expensive product that can generate a ton of commissions like hedge funds or ‘liquid alts’ – the preponderance of the literature is geared towards signing new clients, or acquiring other firms, or how to be acquired. In other news, ‘watchdog’ firms like Morningstar name “managers of the year” who then underperform with great regularity. This serves as a kick in the teeth to investors who try to find managers with true skill.

Speaking of performance, managers do a terrible job differentiating their investment portfolios and philosophies to clients. Index funds are swallowing the industry, and that’s at least partially the fault of the managers who practice our craft. Practitioners make the same mistakes over and over, without discovering a way to outperform. No wonder investors turn to index funds – there is hardly any help for the lay person who might want to try to find a good manager, and the ‘help’ that exists – manager of the year, fund of the year awards – often backfire.

Meanwhile, hardly a week goes by but what some adviser or another doesn’t commit some sort of fraud against clients, causing ever tightening nets of regulation to drop on all of us.

Our own bad habits are perpetuated by our nomenclature. Everyone calls themselves an ‘investment adviser’ – financial planners and brokers who charge commissions, money managers, registered investment advisers. No one can tell the difference.

Next blog, we’ll provide a short guide to the adviser types you might encounter, so that at least you can be armed with that knowledge.