Investment consultant Jon "JB" Beckett says financial advisers have been guilty of “hubris” over their belief in the ability of active managers to outperform.
Beckett is himself a proponent of active management, but he believes the industry is facing serious challenges.
“I do believe that we’re in a period of step change,” he says, “where we can begin to really improve investors’ outcomes through better use of technology.”
Beckett plans to elaborate on his comments in a keynote presentation at Europe’s largest ETF event, Inside ETFs.
The event is being staged Hilton Park Lane in London from 23rd to 25th October. Ember Regis Group, producers of Adviser 2.0, is one of the sponsors. As part of our sponsorship, we’re running a series of interviews with the speakers, producing a series of videos featuring soe of the keynote speakers, and JB is first up.
So, JB, start by telling us about your company, New Fund Order. What exactly do you do?
The New Fund Order is everything we’re seeing starting to unravel today. It’s digitalisation, it’s the rapid expansion of ETFs and the innovation within those. It’s people really starting to question the merits and value of active management and whether that still has a place in today’s world. Really it’s about confronting those truths and trying to figure through the main solutions.
What is it that really gets your blood boiling about the industry that needs to change?
Over-fixation on star managers, the huge focus on marketing over outcomes, massive asset concentrations that have been happening steadily over the last 10-15 years, with too many investors investing the same funds and those funds then going on to disappoint. It’s just a lack of awareness and too much hubris among professional fund investors, advisers and of course the fund managers themselves.
I’ve been in this industry for over 20 years. I am passionate about it, I do genuinely believe in my profession, I do believe in the values of good due diligence and really trying to understand mutual funds beyond the marketing slogans and the advertising, and trying to deliver great outcomes for investors.
What’s added to that in the last few years is my growing interest in financial technology. I do believe that we’re in a period of step change, where we can begin to really improve investors’ outcomes through better use of technology.
With those new technologies, do you think that they will fundamentally reshape the wealth management industry as we know it?
Absolutely. Human beings are very bad at interpreting change. We see things in the here and now. We tend to either underestimate or overestimate change in the future. We don’t have the benefit of hindsight, of viewing change over, say, 50 or 100 years. We understand changes as they apply to us over five, ten or 15 years or so.
Look at what happened in the Industrial Revolution. For 150 years, machines completely changed how people went to work; it was that move from the Agricultural Revolution to the Industrial Revolution, (and) it was defined by machines. What’s going to happen over the next 25 years is that digitalisation, robo and artificial intelligence are going to replace a lot of rules-based, white-collar professions. If a program can replicate a set of rules, then why do you need additional human judgement?
Do you see major obstacles to getting this technology in place and working for the benefit of investors?
The obstacles are mostly human-created; they’re not technological. The reality is that the technological advances we’ve seen outside of the asset management industry already tell us that the technology exists to replace many of our jobs. Where the obstacles occur are with these soft fleshy machines that we call humans. We collectively control the capital strings at the same time as being asked to invest in technology that may then replace us.
I wrote a paper a few years ago called Tesla Fund, and I made a simple analogy between the rise of electric cars and the rise of ETFs. We should have all been driving around in electrical cars 60 years ago; the reason we didn’t was due to huge collusion and collaboration between the big petrochemical giants and Detroit and the big automobile makers. We’ve seen a similar thing happening over the last 10 or 15 years (in asset management). We forget that ETFs have been around for over 20 years now, but they have been stifled in terms of innovation. The industry as a whole has really tried to fight State Street and Vanguard and stop that innovation.
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