Career Advice: Is active management really dying?

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Bogle1981
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Career Advice: Is active management really dying?

Post by Bogle1981 » Mon Apr 15, 2019 3:13 pm

Fellow Bogleheads,

I was hoping to get some career advice from this forum. I currently work in Corporate Finance (10 years in), but I have been offered an opportunity to join a team of 2 FAs at a large wirehouse, with the end goal being to eventually take over the book of business. The lead FA is a good family friend, so I am confident that he is being honest about the end goal. He has about $700M AUM.
Although I am extremely passionate about financial planning and think I am incredibly fortunate to be offered this opportunity, I naturally have reservations about the trajectory of this business, with the move towards passive, low cost investing. I have no dobut that I would be an ethical, hardworking and knowledgeable advisor, but that doesn't change the fact that fewer and fewer people want to pay for Financial Advice, and I do believe in passive index funds for the typical investor (although not for everyone).

Essentially, I am wondering:
- Is this a smart move given that I'm way more interested in Financial Planning over Corp Finance?
- With automation and robo-advisors, do you think there will still be a market for active managers in our lifetime?
- I realize this forum is filled with folks who are very financially savvy, but I am thinking there is still a large market for advisory services for those who are not as well versed in personal finance. Clearly someone is paying for it if this guy has $700M AUM. Would you agree?
- Any words of wisdom for those who have worked in this setting? I know some advisors are bad apples and just salespeople, but this particular advisor is highly respected in the community, he has built a successful business, and I've known him my whole life.

Any and all thoughts welcome!

delamer
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Re: Career Advice: Is active management really dying?

Post by delamer » Mon Apr 15, 2019 3:50 pm

On what basis do you say this friend “is highly respected in the community?”

mega317
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Re: Career Advice: Is active management really dying?

Post by mega317 » Mon Apr 15, 2019 3:50 pm

I think I read in a thread recently that indexing represents 1% of something--daily volume or something. If that's true I don't think active management is dying. Anecdotally people love to talk about their FA, or how they or the FA are smarter than everyone else, or what's the latest hot stock. Many many people also legitimately need help with things that people on this forum find simple.

1. If it seems like a better fit for you I'd go for it, don't worry about some distant, probably never happening, future where all investments are passive.

2. Yes

3. Agree
The lead FA is a good family friend, so I am confident that he is being honest about the end goal.
Careful there

afan
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Re: Career Advice: Is active management really dying?

Post by afan » Mon Apr 15, 2019 4:22 pm

I would not equate being a financial advisor with engaging in active management. There is a need for people to manage a portfolio of index funds for investors unwilling or unable to do that for themselves. Providing financial advice, of course, need not involve investment management at all.

If your opportunity would be to engage in financial ADVISING, passive investment is no threat at all to your future.

If your opportunity is focussed on investment management and convincing people to pay for active management, then it will become increasingly difficult to get clients.

Not all investment management focuses on individuals. Many managers work for endowments and retirement funds. Insurance companies have to invest their assets to make a profit and be prepared to meet their obligations. They cannot just do simple index portfolios since they have to match their risks to their liabilities. All of these companies need people to run their investments.

Working for a wirehouse, seeking individual investors who will pay for active management has always been a tough job. It is sales, not investment management. Some people make a go of it. Many fail.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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arcticpineapplecorp.
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Re: Career Advice: Is active management really dying?

Post by arcticpineapplecorp. » Mon Apr 15, 2019 4:29 pm

Michael Kitces and others in the industry say that despite the rise of automation/roboadvisors, etc. there's plenty of room for growth in the industry. In fact they often say that there are going to be a large number of advisors who will be retiring in the near future which will continue to open up spots for younger advisors with a long trajectory ahead of them. Of course, you have to set yourself apart from the roboadvisors in order to get business, providing services that they don't typically provide. All in one services or referral to tax (working in concert with your investment advice), tax loss harvesting, estate planning, etc. There are many types of services (value added) that Vanguard's PAS doesn't offer.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Career Advice: Is active management really dying?

Post by Fallible » Mon Apr 15, 2019 5:00 pm

Here's a balanced piece on the future of active management by Barry Ritholtz, who sees changes ahead in several areas, including lower fees for investors:

https://ritholtz.com/2018/08/bloomberg- ... ng-away-2/
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ankonaman
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Re: Career Advice: Is active management really dying?

Post by ankonaman » Mon Apr 15, 2019 5:14 pm

I believe there will always be a market for active managers. Many individuals want someone to manage their funds for them irregardless of index investing. I had this same conversation with my accountant a few weeks ago while doing my taxes. We were discussing the virtues of passive index investing and lower fees. His response was he wants someone who is an "expert" managing his money just the same as he does not want to work on his car.

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Re: Career Advice: Is active management really dying?

Post by ChinchillaWhiplash » Mon Apr 15, 2019 5:28 pm

Based on my experience FAs will be around for quite a while. Told a highly educated friend about the pitfalls of EJ and sent him an article from MontlyFool about their practices and he is still happily giving them his money :oops: There are many people who want a local person to meet with and don't want to learn about or take these matters into their own hands. I don't think you will see the demise of the financial advisor in your lifetime.

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fortfun
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Re: Career Advice: Is active management really dying?

Post by fortfun » Mon Apr 15, 2019 5:31 pm

Most of my friends don't think they are smart enough to pick a target date fund. They need to get the smoke and mirrors from a "smart" person. You'll do fine.

illumination
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Re: Career Advice: Is active management really dying?

Post by illumination » Mon Apr 15, 2019 6:06 pm

There's always going to be people that want financial advisors to manage their money and think an active management model is the best way. Particularly wealthy individuals.

Even though more people are going "boglehead" I don't think it's a dying business model in the least. Even really smart and successful people I know think the idea of buying an index fund and just sitting on it is a crazy way to invest.

But don't fool yourself, financial advisors are salespeople. Most of their effort is spent finding new clients for more fees, it's not the management of assets or educating clients on how to best manage their money.

columbia
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Re: Career Advice: Is active management really dying?

Post by columbia » Mon Apr 15, 2019 6:10 pm

Cigarettes are bad for your health, but good luck finding a gas station or corner store that doesn’t sell them.

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Horton
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Re: Career Advice: Is active management really dying?

Post by Horton » Mon Apr 15, 2019 6:18 pm

Listen to this podcast where Michael Kitces discusses the past, present and future of the FA industry. This will give you a lot to think about and will help you evaluate the situation.

http://investorfieldguide.com/kitces/

Trader Joe
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Re: Career Advice: Is active management really dying?

Post by Trader Joe » Mon Apr 15, 2019 6:21 pm

Bogle1981 wrote:
Mon Apr 15, 2019 3:13 pm
Fellow Bogleheads,

I was hoping to get some career advice from this forum. I currently work in Corporate Finance (10 years in), but I have been offered an opportunity to join a team of 2 FAs at a large wirehouse, with the end goal being to eventually take over the book of business. The lead FA is a good family friend, so I am confident that he is being honest about the end goal. He has about $700M AUM.
Although I am extremely passionate about financial planning and think I am incredibly fortunate to be offered this opportunity, I naturally have reservations about the trajectory of this business, with the move towards passive, low cost investing. I have no dobut that I would be an ethical, hardworking and knowledgeable advisor, but that doesn't change the fact that fewer and fewer people want to pay for Financial Advice, and I do believe in passive index funds for the typical investor (although not for everyone).

Essentially, I am wondering:
- Is this a smart move given that I'm way more interested in Financial Planning over Corp Finance?
- With automation and robo-advisors, do you think there will still be a market for active managers in our lifetime?
- I realize this forum is filled with folks who are very financially savvy, but I am thinking there is still a large market for advisory services for those who are not as well versed in personal finance. Clearly someone is paying for it if this guy has $700M AUM. Would you agree?
- Any words of wisdom for those who have worked in this setting? I know some advisors are bad apples and just salespeople, but this particular advisor is highly respected in the community, he has built a successful business, and I've known him my whole life.

Any and all thoughts welcome!
Yes, active management is dying.

Tdubs
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Re: Career Advice: Is active management really dying?

Post by Tdubs » Mon Apr 15, 2019 6:26 pm

Having just done three minutes searching Google on the job outlook for financial advisor, planners and fund managers, the prospects look great over the next ten years. Don't let the folks on BH fool you. There are lots of people who want your talents and will pay a lot for them.

JoeRetire
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Re: Career Advice: Is active management really dying?

Post by JoeRetire » Mon Apr 15, 2019 6:59 pm

Bogle1981 wrote:
Mon Apr 15, 2019 3:13 pm

Although I am extremely passionate about financial planning and think I am incredibly fortunate to be offered this opportunity, I naturally have reservations about the trajectory of this business, with the move towards passive, low cost investing. I have no dobut that I would be an ethical, hardworking and knowledgeable advisor, but that doesn't change the fact that fewer and fewer people want to pay for Financial Advice, and I do believe in passive index funds for the typical investor (although not for everyone).
In this role, would you be permitted to be ethical and advise passive index funds for those who would benefit from them?
With automation and robo-advisors, do you think there will still be a market for active managers in our lifetime?
Yes, there will still be a market. There is still a market for all sorts of expensive, wacky financial products. You just have to be willing to sell them.
I am thinking there is still a large market for advisory services for those who are not as well versed in personal finance. Clearly someone is paying for it if this guy has $700M AUM. Would you agree?
I agree $700M worth. There are plenty of folks who aren't well versed. Some have money.

venkman
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Re: Career Advice: Is active management really dying?

Post by venkman » Mon Apr 15, 2019 11:45 pm

Bogle1981 wrote:
Mon Apr 15, 2019 3:13 pm
I have no dobut that I would be an ethical, hardworking and knowledgeable advisor, but that doesn't change the fact that fewer and fewer people want to pay for Financial Advice, and I do believe in passive index funds for the typical investor (although not for everyone).
What level of AUM fees are we talking about? Knowing that high annual fees are a huge drain on long-term returns, what would you say to clients who are currently paying 1%+ in AUM fees, when you know that those clients would be better off with Vanguard's PAS, or an hourly financial advisor, or just putting everything in a Target Date fund and not paying AUM fees?

You're already past the point of “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” You know that typical industry AUM fees are a terrible deal for investors. Unless the firm had atypically low fees or only charged by the hour, I know it would be impossible for me to feel the slightest bit ethical while working there.

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Re: Career Advice: Is active management really dying?

Post by jyoung » Tue Apr 16, 2019 3:54 am

I think there may be some uncertainty and changes in pay structure, but I don't think FA is going anywhere. The vast majority of people I know have no idea what a target date fund is, what indexing is, a 529, etc... nor do they seem to want to take the time to learn, despite their degrees and six figure incomes. I think there will continue to be a large need for holistic financial planning and people willing to pay for it.

IowaFarmBoy
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Re: Career Advice: Is active management really dying?

Post by IowaFarmBoy » Tue Apr 16, 2019 5:03 am

I think there is definitely a demand for skilled financial advisors. The problem for the advisor is how to get paid enough to have an income comparable to your other options. A 1% assets under management fee seems pretty standard but it is a massive drain on returns (at least to Bogleheads). Likewise for commissions and loads. The hourly rates I see quoted for fee only seem high. But an advisor needs one of these to make a reasonable living.

To me, the biggest question is how will you be paid and will you be able to live with yourself. Many years ago, I underwent the training to become a life insurance agent. I think I was destined to fail- I wasn't a sales person by nature and viewed myself as more of a financial advisor. I couldn't force myself to say my product was the best out there- it was probably as good as anything else but I couldn't work myself up to believe that. I would see guys in the bull pen getting ready to go out and pitch a proposal psyching themselves up by loudly telling themselves "he'd be a fool not to buy this!!!"

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Re: Career Advice: Is active management really dying?

Post by garlandwhizzer » Tue Apr 16, 2019 12:30 pm

Most investors start out with a high level of ignorance about how financial markets operate, portfolio construction, and in fact don't even really know their own risk tolerance. Nor do they have well thought financial goals and a realistic plan to get there. Our schools assiduously avoid teaching financial literacy to students and it shows. Given this situation there are multiple ways to go. The default position, simple and reliable, is a ultra low cost 3 fund portfolio with bond allocation attuned to the investor's risk tolerance. This is a set it and forget it, sure fire plan to achieve long term success if you contribute to it on a regular basis and don't panic sell. Others will choose an advisor to create a specific plan attuned to them which is usually more complex, more costly, and may or may not outperform 3 fund long term. Some may benefit from hand holding during a bear market. A few wlll study the literature on financial markets/investing and try to learn and make informed decisions on the basis of acquired knowledge. Others will bungle along and learn from the school of hard knocks. I think market for active management and advisors will never die completely because so many know so little about investing and many of them prefer that someone else who is supposedly experienced and knowledgeable to make decisions for them. The trend of history has been toward low cost indexing and that will likely continue but IMO will never completely dominate the market. Many who start out with active management/advisors, myself included, will wind up with low cost indexing due to frustration with the increased costs and decreased performance of most active and most managers.

Garland Whizzer

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beyou
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Re: Career Advice: Is active management really dying?

Post by beyou » Tue Apr 16, 2019 12:41 pm

When you say some are "just salesmen", your sales skills are 100% of your ability to start from scratch in that industry.
Now you many not have to start from scratch, if you can make a living from a book of business that will be handed over.
I would assume anyone bringing you in would keep a % of the income for themselves until they are unable to have any client contact and truly retired.
Until then you may get some % but if not enough to live then you must bring in clients. This is NOT based on your financial skills but rather based on your sales/networking skills.

Active management firms are consolidating/shrinking dramatically, laying off and relocating accountants, lawyers, IT staff etc.
But those who face clients are able to continue if they have good sales/client service skills.
Look at yourself as sales/client service first, financial expert second, and you can make a living.
But note you have lots of competition for those few who have a desire and ability to pay for help.
Those without assets may need help but can't pay you much.
Those with great assets are a tiny minority, pursued relentlessly by many advisors.

staythecourse
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Re: Career Advice: Is active management really dying?

Post by staythecourse » Tue Apr 16, 2019 12:50 pm

afan wrote:
Mon Apr 15, 2019 4:22 pm
I would not equate being a financial advisor with engaging in active management.
I agree 100%. I used to take offense when Dr. Bernstein himself said several years ago that most folks would benefit from FA. Now that I am older and seen more I would agree. Doesn't mean they have to be into active management, but can do SO MUCH if you have no interest and/ or not able to think things through yourself.

For the OP, I would just consider EVERY job is in the cross hairs of automation and/ or DIY attitude. It seems everybody thinks they can do everybody else's job better then they can. That doesn't mean it is true (usually not). I would spend sometime talking to OTHER FA that are not involved in this situation of yours and pick their brain about the future. I would also think about HOW you intend to grow the business. Like any other business your (like the current owner) ARE the product. The investing part is secondary. So, what would you offer the next group of potential investors. I would focus on: Tax prep, estate planning, retirement withdrawal optimization to decrease tax load, etc...

Personally, I think there is a GREATER need for FA then ever before. I just think the model needs to change from, "Hey choose me as I can make you more money then index funds can" to "Hey these are all the ancillary services my company can provide. A stop shop so you can not worry about it and go enjoy what you like to do".

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

S_Track
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Re: Career Advice: Is active management really dying?

Post by S_Track » Tue Apr 16, 2019 3:07 pm

It seems you will be a great asset to the field of FA. Heck I am still learning here but the Boglehead community has been my FA. I would never have come up with Taylor's 3 funds on my own. I am fortunate to have the time to read through the forum posts and material but many don't and need someone to sift through the information and offer guidance. Many complicated situation, especially in withdrawal stage. Best of luck to you.
Last edited by S_Track on Tue Apr 16, 2019 4:16 pm, edited 1 time in total.

123
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Re: Career Advice: Is active management really dying?

Post by 123 » Tue Apr 16, 2019 3:20 pm

Remember that the job of a FA is essentially sales. Your income depends on your ability to keep the existing book of business as well as your ability to expand it. You will likely end up giving most of your clients the same investments since that is what make it easiest for you and allows you to be focused on getting additional clients. If you're associated with a large firm they will likely have standard investment templates that you fit the client to. Hopefully you won't be involved in any grunt re-balancing activity, that job is for clerks. Your job is sales.
The closest helping hand is at the end of your own arm.

Topic Author
Bogle1981
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Re: Career Advice: Is active management really dying?

Post by Bogle1981 » Wed Apr 17, 2019 11:35 am

Thank you all. Tremendously helpful insight on this thread. Much appreciated.

TravelGeek
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Re: Career Advice: Is active management really dying?

Post by TravelGeek » Wed Apr 17, 2019 11:55 am

venkman wrote:
Mon Apr 15, 2019 11:45 pm
Bogle1981 wrote:
Mon Apr 15, 2019 3:13 pm
I have no dobut that I would be an ethical, hardworking and knowledgeable advisor, but that doesn't change the fact that fewer and fewer people want to pay for Financial Advice, and I do believe in passive index funds for the typical investor (although not for everyone).
What level of AUM fees are we talking about? Knowing that high annual fees are a huge drain on long-term returns, what would you say to clients who are currently paying 1%+ in AUM fees, when you know that those clients would be better off with Vanguard's PAS, or an hourly financial advisor, or just putting everything in a Target Date fund and not paying AUM fees?

You're already past the point of “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” You know that typical industry AUM fees are a terrible deal for investors. Unless the firm had atypically low fees or only charged by the hour, I know it would be impossible for me to feel the slightest bit ethical while working there.
That was my thought as well. I am reminded of Rick Ferri’s words in

https://www.thinkadvisor.com/2019/04/12 ... fee-model/
A client with $2 million paying 0.9% of AUM annually is told that half the fee is for planning and half is for investment management, but continues to pay $9,000 every single year for a financial plan that’s already done, explains Ferri. “You’re supposed to be a fiduciary,” he says, referring to that theoretical advisor.
(Rick started a separate thread about this article a few days ago)

With an AUM, how ethical and hardworking can a financial advisor really be when the ongoing annual work is limited maybe to some rebalancing? And why is a percentage of assets the right measure when it doesn’t really reflect the complexity or simplicity of a portfolio?

Topic Author
Bogle1981
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Re: Career Advice: Is active management really dying?

Post by Bogle1981 » Wed Apr 17, 2019 12:42 pm

Travelgeek - your comments are on par with the only thing keeping me from doing this.

The way I see it, both hold true. It is definitely true that hiring an FA is expensive and many people would never pay for one, but it is also true that some don't care, and are willing to pay for the ongoing advice, personal relationship, and access to someone who can handle all of their financial affairs. Financial plans are not one time events. Life happens (death of family members, college planning, estate planning, wealth transfer, etc.), which can cause your financial plan to change. I have no doubt that I would provide a ton more value than just creating one financial plan, putting the client in some funds and calling it a day. There are more ways to add value. My question was not so much "is it ethical" but more... "even with the value add, do you think people will still pay for Advisors?" As for the fee structures, I definitely think those are changing.

Seems like the crowd is split on this thread.

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Re: Career Advice: Is active management really dying?

Post by deltaneutral83 » Wed Apr 17, 2019 1:14 pm

Does the book of business just get handed over, what incentive does the lead FA have to just hand you a book of $700M? Do you have to buy him out which is usually a year's revenue so $700k (at 1%). More details are needed.
Financial plans are not one time events. Life happens (death of family members, college planning, estate planning, wealth transfer, etc.), which can cause your financial plan to change. I have no doubt that I would provide a ton more value than just creating one financial plan, putting the client in some funds and calling it a day. There are more ways to add value. My question was not so much "is it ethical" but more... "even with the value add, do you think people will still pay for Advisors?" As for the fee structures, I definitely think those are changing.

Seems like the crowd is split on this thread.
What about anything you mentioned here does a top notch $300-$400 an hour fee only guy not provide which is vastly cheaper than 1% ? If you have a $500k portfolio a $400 an hour fee only guy who does 15 hours up front, and then an hour a year (if client even needed it especially during accumulation) would be monumentally cheaper than 1% AUM.

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