What Do Clients Want?

Today Josh and I spoke about the outflows at the Magellan fund, which is now 84% smaller than it was at its peak in 1997. This reminds me of a Yogi Berra Quote, “If the people don’t want to come out to the ballpark, nobody’s going to stop them.”

Magellan has beaten the S&P 500 by a decent margin over the last five years, but it hasn’t been enough to stem the tide of money rushing for the exits.

So what’s going on? I believe that the baby boomers who invested with Peter Lynch in the 90s now have different priorities. When they were 40 and in their peak earning years, they wanted to beat the market. Now that they’re either approaching or in retirement, they don’t have as much interest in the pursuit of alpha. Today they want to know, am I going to be okay? Will the assets that I’ve accumulated last me for the rest of my life? And it’s the advisor’s job to help them answer those questions, which are really the only ones that matter. For many, index funds are a more reliable way to answer these questions (even though returns are not guaranteed). I won’t belabor the pros and cons of indexing versus active funds, but this is in my opinion what’s going on.

One of the things I enjoy most about working for a firm whose clients find them on the internet is they are self-selecting. We don’t have to change their mind or convince them that our way is the only right way. We don’t have to wrestle them into submission. We need to be able to demonstrate our value, but we don’t need to embellish. If we can tell our truth, and shrink the gap between expectations and reality, then that gives both sides the best chance of having a long and healthy relationship.

There is nothing wrong with trying to beat the market, I mean, obviously. It’s just not something we want to live or die by, and we certainly don’t want our client’s lives hinging on that premise.

Josh and I spoke today about why investors stopped caring about alpha, which you can watch below.