Institutional investors now have the opportunity “to hire the best.” If this turns out like Barron’s list of “Top Financial Advisors” for retail investors, institutional investors should run for the hills.
Like its “pay to play” sibling, this list is designed to generate more revenue for the magazine rather than look out for the best interests of investors. Since 2015, Barron’s has created a twin to its infamous Top 100 Advisors List. Just like its evil sibling, this list has very questionable entry criteria.
“To produce the ranking, Barron’s uses an array of criteria, including the amount of institutional investments each team overseas, the revenue those assets generate, the size of client rosters, and the number of team members.”
Let’s get this straight: According to Barron’s, these criteria are supposed to benefit institutional investors?
- The revenue those assets generate – Expensive and complicated products that generate tons of money that benefit the advisor, not the client.
- The size of their client roster – Lots of people to service, leaving little time to understand the culture and real needs of the institution.
- The number of team members – A huge sales/marketing force, whose main responsibility is to gather assets.
This list should be placed in the magazine’s paid advertisement section and not classified as a “Special Report.”
Ben Carlson has a list of real criteria that real financial advisors should follow when attempting to meet the needs of both large and small institutions. This really stuck out to me. According to Ben:
Funds try to look the part. Institutions are labeled “sophisticated” investors because they have so much money. Many try to look the part and make things more complicated than they need to be, often to their own detriment.
Let’s contrast this statement to this gem from UBS Institutional Consulting, found in the article: “He acknowledges that passive funds have performed well in the recent equity bull market but adds that the Federal Reserve’s current trajectory of rising rates has coincided with better returns for active managers early this year. ‘As interest rates rise, you’re seeing more dislocation for active versus passive management.'”
I guess the massive amount of team members did not see this memo:82% of all U.S. funds trailed their respective benchmarks over 15 years. This Wall Street Journal article gives all the gory details.
This study demolishes the tired argument about how expensive active management will do well over a full business cycle. Since the normal cycle lasts about 3-5 years, their argument goes straight into “the dog ate my homework” bin.
Maybe using index funds will not “generate” huge revenue to get on the “Top Advisor” list, but will certainly provide enormous benefits to the institutions. It is also amusing that these firms who consistently speak about the long term will refer to a 3-month time horizon, which has the predictive powers of a coin flip.
Both retail and institutional investors should not let their initial reactions to seeing a “Top List” deceive them.
Would you go to a restaurant only because it made the most money, serviced the most customers and had the greatest number of employees?
I don’t know about you, but what I care most about is how the food tastes.
Barron’s lists leave investors with a very expensive Happy Meal.
Greasy, salty, and fatty the last items people need on their investment menus.
Source: Barron’s Where the Big Money Gets its Advice by Ross Snel