Industry Updates

Advisors struggling to figure out how to beat Vanguard

David Tuckwell

Three ETF stories and ideas from around the web this week that we found interesting.

1) How do you beat Vanguard?

Vanguard is winning in every corner of investment management.

Asset managers are under threat from its ETFs and mutual funds; financial planners are under threat from its robo-advisor. Last year, US mutual funds and ETFs took in $400 billion total assets, of which Vanguard took $320bn. Vanguard's robo-advisor, called Personal Advisor Services, boasts $83bn assets, which it ensnared in just three years. No other robo-advisor comes even close.

So how can asset houses compete?

One answer, from Pinnacle Advisory Group, is to remember the history of financial advisory. Financial advisors started out as salesmen. Only after advisors proved themselves as salesmen would their companies promote them to a job where they got to offer advice.

This distinction matters, Pinnacle says, because this business model - cometh the salesman, becometh the advisor - is now over thanks in large part to ETFs. People will still want impartial financial advice and strategists - and the kinds of financial advisors who actually offer financial advice still have a future. But the salesmen disguised as advisors do not.

2) ETF-induced Scarcity driving the markets

Trump, high profits, and central banks have all been blamed for the record bull run.

But an important variable that's often overlooked is scarcity

. Stocks are becoming scarcer thanks to corporate buybacks and passive investing. When companies buyback their shares and ETFs hold them for long periods, there are fewer left to go round. The scarcity means prices go up (so long as demand stays constant) which is exactly what's been happening.

3) Know Mifid? Want a job?

Everyone company in European finance or even on the periphery of European finance

- consulting, law firms, banks, asset managers, etc. - has gone on a hiring spree in the wake of Mifid. The number of job ads on LinkedIn that reference Mifid has quadrupled meaning that anyone with knowledge of the regulations is virtually guaranteed a job.

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