Is This Thing On?
by Jordan Kenna -
June 29, 2017
Last week I attended a meeting in Vancouver hosted by one of the largest investment firms on planet earth. I would characterize the attendance at the Vanguard 2017 Investment Symposium in Vancouver as thin…which is interesting for a firm that is 4x’s the size of the entire Canadian fund industry.
Some background: Vanguard is not only an industry giant, but is also at the forefront of a meaningful change underway in the investment industry, namely: investors (ranging from pension plans to individuals) swapping out of stock picking mandates /actively managed funds and into passive mandates / index funds. Cost is a major driver here with many investors concluding a guaranteed reduction in investment expenses (index funds), is more valuable than paying a premium in exchange for an opportunity to possibly outperform indexes (active funds).
Vanguard and their miniscule fee schedule has been a major beneficiary of this recent change. Just over a year ago I remarked to my Vanguard wholesaler that their pricing made me question whether they were even a ‘for profit’ venture….I was half joking. His answer was serious though; Vanguard is actually a co-op. This caught me flat footed…I typically associate co-ops with bad fitting bike commuter jackets and gas stations on Vancouver Island. I don’t associate the structure with one of the largest participants on Wall Street (that said, their head office is actually in Valley Forge, Pennsylvania). Nonetheless, Vanguard’s success has not fueled Peking duck dinners and dividends to company executives who then buy yachts. On the contrary, Vanguard’s massive growth continues to fuel additional fee cuts for investors in their funds.
So with a major industry change underway and a firm at the forefront of that change (whose actions have received accolades from everyone from Warren Buffet to Morningstar) hosting a meeting …you would assume said meeting would be standing room only. A co-op geared to doing the right thing for its investors and effecting positive change on its industry….and yet there we were at the Hyatt: roughly 100 Vancouver financial advisors. In the late 90’s a meeting launching a gimmicky fund based on demographics or a creaky environmental sustainability filter, would command attendance of well over 400 financial advisors in the largest ballrooms Vancouver had.
The Vanguard meeting was not a direct product push. Rather, two speakers presented recently published research on portfolio construction with no direct pitch on any Vanguard fund. As far as content goes, it was substantive. At worst, it was a little boring. At best, mutual fund industry marketing voodoo was 100% absent…. along with anything resembling a meaningful audience turnout. Where were the financial advisors (aka the people other people pay to make decisions about their money with as much care as if it was their own)?
Now, if passive investing as an approach is not someone’s jam —- I totally accept that. However given the massive volume of money that is moving, you would think even skeptics would come out to reinforce their beliefs and make sure they weren’t missing something. To report back to your client that passive is not part of your approach, you would want to confirm you had reviewed the prevailing research in detail, and rejected it for solid reasons. Incidentally this will put you at odds with the giants of modern finance academia – leaving you with a tough row to hoe, but not impossible. Showing up though, with a 5 star rating for your favorite fund as your argument would be the proverbial knife at a gunfight – heavier ammo will be required.
So, why the low turnout?
The two speakers had flown in from Philadelphia. Perhaps Vanguards’ online marketing department had already posted their presentations online, and stolen the speakers’ thunder in the process? Admittedly I would prefer to read a white paper on my computer rather than travel to hear it presented.
Perhaps many financial advisors dislike Vanguard for the industry disruption it is causing, though why you would want to die on that hill is perplexing to me. Index funds have been around a long time, and are hardly kryptonite to any credible financial advisor.
Maybe we were just living up to our chill Vancouver stereotype and everyone was out killing a kale smoothie before their afternoon paddleboard sesh? The weather was decent that afternoon.
To conclude, I don’t have an answer other than to report the disconnect between apparent financial advisor disinterest in the face of massive sums of money in motion – Vanguard takes in $2B globally per day. Meaningful change is underway in the investment industry today and yet, in a ballroom at the Hyatt last week, it was eerily quiet.