Asset Management in 2018 (Part 1)

The last few months of blogging began as an attempt to figure out where I might fit into the asset management landscape. I have since discovered an industrywide lack of performance reporting that may or may not be a serious issue.

That people seeking professionals to invest money do not scrutinize performance history strikes me as a telltale sign of poor financial literacy. Many people may seek IAs because they believe “this is just what you do” when you have idle capital. And perhaps people assume that as clients, any IA will work in their best interest to achieve maximal returns. With performance reporting optional, people probably have little understanding what criteria they should consider when selecting an IA or what parameters to monitor when tracking an IA.*

Part of me sees performance oversight as evidence of brainwashing. Poor financial literacy is probably as good an explanation and a much less paranoid one (think Occam’s razor).

The issue shocks me because I stress performance. Defining, understanding, and optimizing performance through system development are what I do. If I were not able to outperform as a trader then I would have gone back to work as a pharmacist.

Hiring an IA to generate subpar returns is much better than socking wealth under a mattress or in a bank savings account. I believe the significant improvement between paying a hefty management fee to an IA and not being invested at all is far greater than the improvement between optimal asset management and industry-standard [conventional] asset management. And given the havoc wreaked by financial fraud over the decades, perhaps it’s not so bad to settle for subpar returns with someone you can feel good about as opposed to taking chances with a black box sight unseen.**

I will continue next time.

* For those who do this. Some clients don’t even open monthly statements.
** Especially if fraud is more common with entities not personally known, which may not be the case.