We’re Getting Smarter About Our Investments

And the financial advice industry doesn’t necessarily like that.

Photo credit: stevepb, CC0 Public Domain.

At the beginning of the week, I shared a NYT article suggesting that investing was really complicated and we were all going to fail, or at least earn less money than we could have:

I’ll end the week with a more optimistic article from Bloomberg Businessweek, suggesting that we’re actually getting smarter about investing.

Let’s look at the last paragraph of the article first:

The U.S. has always had two markets for investment products, one for clients who know the questions to ask and another for novices.

As Bloomberg explains, fewer and fewer people are falling into the “novices” group—which means the financial advice industry is making less money and we’re making better investments.

Bloomberg also cites evidence indicating that, even if President Trump revokes the fiduciary rule, it’s too late; investors are getting smarter about where they put their money, probably because of all those articles on the internet explaining how we’re doing investing wrong. (Also John Oliver, which Bloomberg notes is where many people learned what a fiduciary is. Including me.)

Investors yanked $340 billion from actively managed funds last year, according to Morningstar, and poured $505 billion into index and exchange-traded funds, which typically cost far less and come without added sales fees. “Clients are savvier about hidden expense ratios and commissions than they were just a few years ago,” the research company Cerulli Associates warned the industry in a recent report. Six years ago a Cerulli survey found 65 percent of investors either didn’t know how much they were paying their financial adviser or incorrectly believed the advice was free. That fell to 44 percent by mid-2016.

I love that Cerulli Associates is warning the industry that people have figured out the hidden expense ratio thing. Like it’s bad news. But, if you’ve built your company on “investing for novices,” it probably is.

I guess it’s good to know that President Trump “can’t stop” us from making good decisions about our retirement investments, or at least thinking we’re making good decisions because we watched an HBO comedy news show that one time. I’d like to suggest a different ending to Bloomberg’s story: the U.S. is developing three different markets for investment products; one for clients who know the questions to ask, another for novices, and a third for people who are going to do it themselves because they have the internet. (Maybe a fourth for people whose retirement strategy is to opt in to their company’s 401(k) plan and pick the “moderate risk” option because it’s the one in the middle.)

Also: investing doesn’t have to be as complicated as certain NYT articles claim it is.