The Future of Finance

Let’s start with something controversial: Money managers are a commodity

The rise of quantitative investment strategies (computers), more equal access to information (the internet) and other factors have leveled the playing field.

The vast majority of active managers have underperformed during the past five years. In response, many investors have moved from active management, towards index funds and Exchange-Traded Funds (ETFs).

Warren Buffett believes that amateur investors can outperform most investment professionals by simply investing in index funds.

Due to talent and technology, is has become more difficult to beat the market. Luck — not skill — increasingly explains the success of most active managers. Investment practices and marketing tactics are no longer constrained by time and space. Modern communications technologies have transformed investing from a lethargic local affair to an instant global one.

Because of these changes, firms must find new ways to retain and grow client assets.

So, if your job is managing money for clients, how do you differentiate yourself?

Trust and attention have become the defining points of differentiation.

Using trust as a competitive advantage, leading firms are guided by transparency, ownership of attention, and consistent communication with current and prospective clients. These firms have openly disclosed their investment strategies.

I call them Naked Brands

I have two favorite examples

  1. Cambria Investments
  2. Ritholtz Wealth Management

Both firms differentiate themselves with blogs and podcasts. 

By fostering communication between advisors and their clients, podcasts are the new word-of-mouth, and blogs are the new business cards.

Here’s the key takeaway: with transparency and consistent communication, wealth managers can differentiate themselves, attract a global clientele, and justify their fees. 

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