Among the many pitches I get for story ideas, one company promises a new approach to investing that will benefit everyone including investors, financial advisors, and fund managers. However, this just isn’t possible.
Very roughly speaking we can divide the investment industry into investors, advisors, and fund managers. Among advisors, fund managers, and their supporting consultants and other staff, there are a lot of mouths to feed in Canada. And the money they get comes out of investors’ pockets.
As long as the investment industry continues to employ as many people as it does now, investors must continue to pay the same high fees they pay now, on average. In kindergarten we learned that 5 blocks are still 5 blocks when they are moved around. Similarly, no amount of rearranging costs can keep all the financial helpers employed while lowering investors’ costs.
The only way the average investor can get lower costs is for the fees going to helpers to shrink. This means lower salaries, fewer helpers, or both. If we manage to bring significant cost benefit to investors in the future, it will come at the expense of advisors, fund managers, or both.
It is this basic fact that has much of the financial industry doing whatever they can to maintain the current high-fee model. Don’t expect anyone to give up their paycheque without a fight.