People should stop being so fee sensitive and learn how to be an investor, according to a leading portfolio manager.
Wolfgang Klein, senior vice president and investment advisor at Canaccord Genuity Wealth Management, said that returns should be the obsession not price and that this lemming-like rush to passive investment is a golden opportunity for good active managers.
Fidelity US recently announced the first 0% product, unveiling two index-tracking funds to “win” the race to the bottom.
But the Bay Street advisor said people put too much emphasis on cost and that behavioural finance remains a huge risk to people’s wealth. Regardless of fees, he said preventing a customer from doing the wrong thing at the wrong time remains the top priority for good advisors.
He said: “All this talk about lower fees and BlackRock and passive and ETFs and fees, fees, fees, it's causing people to take an incorrect viewpoint on investing, whereby they are just blindly following the masses and there’s no price discovery.
“We witnessed that in 1999 where there was no longer a price discovery on Nortel and it became a third of the index and it imploded. It was self-fulfilling.
“So without price discovery there is opportunity. Fees are creating more passive investing, which is setting up the opportunity, a big opportunity, for an active money manager. That’s me!”
Klein also questioned whether investors should be putting money into robos like Wealthsimple, which has yet to turn a profit, and said a bear market will test how wise that decision was.
He said a good advisor, not a cheap product, will protect the investor in a downturn.
“What will save them is guidance through the falling market,” he said. “Portfolios need to be rebalanced and retuned to customers’ expectations. The value needs to be constantly reassessed for the market place.
“In other words, is this market expensive and should I lighten the load? Or is the market fairly priced and going higher? For example, I think a lot of people right now are too conservatively invested or too aggressively invested, but mainly too conservative.
“Same thing if you go passive and you want to buy bitcoin or marijuana or AI and you have have no one guiding you, how are you going to make those decisions?”
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