No Advice May Be the Best Advice
Every now and again I open the newspaper and there’s an article that perfectly captures what I’ve been trying to say in this blog. This morning, The New York Times featured two articles. Eduardo Porter cogently documents the role high fees and conflicted investment advice play in sapping individuals of their retirement savings. “Americans Aren’t Saving Enough for Retirement, but One Change Could Help” lauds the Department of Labor’s effort to hold brokers to a fiduciary standard when they advise clients on their retirement accounts. Mr. Porter covers many of the points I made in my column in the News & Observer ten days ago (“Think twice before rolling over your 401(k) into an IRA”).
Nine pages into the business section, Randall Smith write that pension funds trail individuals in using index funds. Individuals now have about 30% of their assets in index funds, while public and corporate pension plans only have 19% and 11% invested in passive funds. You might think that “sophisticated” institutional investors would have learned by now that active money managers can’t beat a well-constructed index. However, it’s the amateur investors who have absorbed that lesson.
Taken together these articles suggest that investors seem to do best when they ignore experts. When retail investor use advisors they wind up paying excessive fees and getting conflicted advice. Left to their own devices, they head toward indexation. Traditional pensions are in the hands of the experts, and too many of them seem to think that active management, alternative investments, and high fees are a good idea.