SOMETHING FOR THE WEEKEND
It’s too early to draw any firm conclusions, but at the time of writing it appears that the Trump Administration may be starting to dismantle the DOL Fiduciary Rule introduced by President Obama to give US investors greater protection from bad advice.
You can of course expect to read some strong opinions about this on TEBI next week, but for now, you might want to take at these:
Trump to issue directives targeting Dodd-Frank, retirement advice rule (Reuters)
Trump kills the DOL and investors must decide (David Bahnsen)
And a more positive take on today’s developments from Bloomberg:
Trump’s Fiduciary Rule order seen unlikely to stop fee shift (Zeke Faux)
The UK’s local government pension scheme is a disgrace
I’m sure there are plenty of things that Michael Johnson and John Clancy don’t see eye to eye on. Johnson is a Research Fellow at the right-leaning Centre for Policy Studies; Clancy is a Labour councillor and leader of Birmingham City Council.
What they do agree on though is that Britain’s Local Government Pension Scheme is a complete mess.
Johnson has just authored a CPS report on the LGPS, which is responsible for paying retirement funds of more than 5 million current and former council workers. The report claims the LGPS has paid out a mind-boggling £9 billion in fees and charges over the past decade — about half of which have been hidden.
Those costs, the report finds, as a proportion of asset market value, have more than doubled in the ten years to 2016.
Active’s ‘strength’ is really a weakness
It’s one of the ironies of active asset management that its perceived strength is also its biggest weakness.
To quote Crispin Odey, the billionaire hedge fund manager who somehow managed to lose half his clients’ money in 2016, passive investing is “mindless”. Active managers, on the other hand, have the power to act — to use their skill and expertise to buy and sell and take positions; the power, in other words, to trade securities as and when they please.
But let’s think about trading for a moment. Whereas, in the past, a large proportion of traders were non-professionals, nowadays around 95% of trading is done by professional asset managers. They’re generally all very bright and are all acting on more or less exactly the same information.
Remember, for every trade there’s a buyer and a seller, and for every winner there has to be a loser. So, your fund manager is directly competing with my fund manager. And what makes you think that your fund manager is any smarter than mine?
Financial journalism is not for amateurs
I spent 25 years in mainstream journalism and enjoyed almost every minute for it. The buzz, for me, was having to get your head around complex subject matter in a very short space of time. There’s nothing like the adrenalin rush of holding forth for two or three minutes, live on television, on a subject you knew little or nothing about when you got out of bed.
In many ways, not having in-depth knowledge is a positive advantage for a general news reporter. It forces you to focus on the essential information, thoroughly understand it, and then explain it to an audience which, by and large, has an even more basic understanding of the issues involved. There are, however, some areas of journalism which demand specialist expertise, and personal finance is definitely one of them.
In conversation with a distinguished professor of finance a few weeks ago, I happened to ask him, Why do the vast majority of investors continue to use actively managed funds despite the overwhelming academic evidence that they shouldn’t?
“Amateurish journalism,” he replied. “Young people with English and history degrees writing about a subject they have no formal training in.” His comment challenged me, and not just because I’m a history graduate who’s never taken a course in finance.
If only we’d listened to Charley 40 years ago
There’s a must-read article by Charley Ellis in the Financial Times today.
Charley, a good friend of this blog, famously wrote in the mid-1970s about active management being a loser’s game. In the latest article, Charley explains why that assessment has become increasingly true over the intervening 40 years.
Tell them today
For those who aren’t familiar with Grosvenor Square in London, there’s a garden next to the US Embassy in memory of those who died in the 9/11 terror attacks in 2001. The centrepiece is an oak pavilion which bears the words: “Grief is the price we pay for love”. It was part of a message from the Queen read out at remembrance service held in New York a week after that dreadful day.
I’m told the words aren’t actually the Queen’s but those of Dr Colin Murray Parkes, a psychiatrist based at St Christopher’s Hospice in Sydenham and a renowned authority on grief and mourning. Either way, those words are particular poignant for me just now. My dear father had a severe stroke in August and deteriorated rapidly over the next five months. I was at his bedside as he passed away peacefully in a nursing home in Birmingham yesterday morning.
Over Christmas I was particularly moved by a post by my fellow investment blogger Michael Batnick, in which he recalls the sadness of watching his mother die. The post is life-affirming and full of wisdom. The important thing, says Michael, is that life is very precious; we should enjoy life because we only get one shot at it; this is not a dress rehearsal. In the words of the late Randy Pausch, “time is all you have — and you may find one day that you have less than you think.”
Also worth reading
Stock markets and the rule of law (Josh Brown)
What the “experts” got wrong in 2016 (Larry Swedroe)
Timing market factors is very, very hard (Flirting with Models)
Advisers add far more value than fund managers (Adviser 2.0)
“Most market participants have no demonstrable advantage” (Michael Batnick)
Owning an individual stock is one of the riskiest things an investor can do (Yang Xu)
How exactly do you benchmark a globally diversified, multi-asset portfolio? (Markus Schuller)
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
