Ann Marsh at http://www.financial-planning.com/news/ ... 061-1.html has an interesting response. She quotes some people critical of Adams' piece; rather than denying Adams' claim that professionals don't beat the market average over time, they point to ways that investment advisors can add value, e.g. "talking you out of doing something stupid."An investment advisor needs to justify his pay, and that means pretending to have stock-picking magical powers that science has never discovered. Every study on the topic shows that the professionals generally don’t beat the market average over time. But they do cause a lot of churn that causes a lot of unnecessary taxpaying on gains. And the professionals charge enough to take perhaps 25% of your potential annual gain in fees.
Meanwhile, wise people such as you buy your market index ETFs and avoid all of the risks injected by the professional investment advisors. But your potential stock gains are suppressed because so many other people are using professional advice and losing money. That makes the category of “investing in stocks” look riskier than it is.
So my suggestion for permanently lifting the value of the stock market to new sustainably high price-earnings ratios is to pass a law making it illegal to offer financial services without disclosing the truth – that they are mostly a waste of your time.
...Once society gets rid of the risk of professional investment advice, stocks should go to a permanently higher price-earnings ratio. Given the massive dollar amounts in the investment economy, this instant increase in the value of stocks would have an enormous impact on humanity.
Well, if actively managing a portfolio of individual stocks is stupid, they usually aren't talking you out of that. To be fair though, some investment advisors do recommend index funds, and some provide worthwhile financial planning services such as helping an investor look her financial picture as a whole, helping her determine her willingness and ability to take equity risk, and helping her maintain her target equity/bond split during market crashes and market bubbles. Best, Neil