“It is rarely the application of government programs that create true, lasting change in the world. It is the entrepreneurs working out of garages in Silicon Valley and shacks with dirt floors in India that end up changing the world for the better.” ~ James Sorenson
“It is time to realize that they (cryptocurrencies) are the real barbarians at the gate.”
Andrew Sheng, chief adviser to the China Banking Regulatory Commission.
The world is changing faster than we can think. Disruption is constantly chipping away at conventional systems and driving change at a dizzy speed. Begun in 2009, Bitcoin was initially taken up by an elite few with the technical skills to dive and dabble in something so fundamentally disruptive, that it has taken several years for the penny to drop on the wider public. After a somewhat bumpy ride, the price of Bitcoin has risen from 0.0001 USD in 2009 to 1 000 USD in 2013, to over 4,000 USD per BTC as of August 2017.
In the investment world, where results are measured in percentage terms, it is very easy to lose track of the real value of advice. Of all the participants in the ‘investment value chain’, historically it has been the financial adviser who has most keenly felt the pressure to reduce their fees. Being people centric at heart, quite often they oblige. As it turns out, quite unfairly, as we will explain below.
Consider the illustration showing investor returns:
|Comparison||Return % per annum|
|Stock market (eg JSE, S&P, Dow Jones)||10.0%|
|Managed Equity Fund (a fund manager)||12.0%|
|Excess Investor Return (Difference between stock market and the Fund||2.0%|
|Less: fund manager fees (cost of accessing the fund)||1.25%|
|Net return received||10.75%|
At a glance this shows the investor receiving a net 10.75% return from the fund manager for a fee of 1.25%. Seemingly a good deal.
Take then a financial advice fee of 0.75% p.a over and above the fund manager’s fee, and we are back to square one: the stock market return of 10.00%. Many investors do this simple comparison and start to question the value of advice, with the fund manager receiving substantially more gratitude for the returns delivered.
The reality could not be more different. This comparison, while simple, illustrates how the value of advice can get lost in the numbers.Here’s why…
The value of small businesses in our economy is often overlooked when planning an investment portfolio. But small businesses equate to a substantial impact in nearly all economies worldwide. There are more than 25 million small businesses in the US alone, accounting for up to 60% of jobs – and in a recent study by Paychex, small businesses have produced 13 times more patents than larger firms.
You can never be too comfortable or too canny when it comes to investments. In a world that is ever-changing, there are going to be ups and downs, not to mention the occasional unexpected swoop one way or the other. Many factors affect the markets – which are built on speculation and perception – and your reaction may be just one link too many in a chain reaction that can unravel years of quiet progress.