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Main Street beats Wall Street when it comes to investment fads

04 February 2021

By Henry Adefope

History shows that *cautiously* embracing the weird and new benefits financial services leaders…

“The horse is here to stay, but the automobile is only a novelty – a fad.” So said the president of the Michigan Savings Bank in 1903 to Horace Rackham, Henry Ford's lawyer, infamously advising him against investing in the motor company.

Financial services sector professionals (particularly in wealth and asset management) are well regarded for their forecasting abilities. But with the future more unknown than before, it’s not easy to plan and foresee the challenges and risks coming from over the hill.

But some have. Those that refer to emerging risks and challenges as opportunities on a public platform, often stand the test of time. They keep their client base engaged, look like they have their fingers on the pulse, and appear agile and reactive. Change always brings opportunities, and financial institutions with proactive engagement with frontier industry trends and evolution will provide organisation’s with a reason to survive in client’s increasingly digitalised universe.  

There are a few lessons to be learned about the signs that a challenge or risk, or fad, is likely to stick, and how you should be responding to signs of future change (which appears to be with cautiously open arms).  History is littered with examples of first-mover optimism paying off for business leaders, particularly if it’s something talked about by the ordinary woman or man on the street. In this case understanding the difference between the truth, and the truth people want to hear is the difference-maker.  Here are some examples.

Social media engagement pays

Wall Street

I was at a wealth and asset management conference in 2013. Twitter was becoming a thing and Instagram was beginning to grease its wheels. Social media was not an agenda point at this conference, but the moderator, in passing, asked the audience whether it should be in the future. Do any of you have plans to harness Twitter? This was met with giggles, sniggers and in some instances, outright laughter. It was funny back then. Seven years later, you’ll be hard pressed to find any wealth or asset manager without a Twitter handle.

Fast forward to 2019 and research by Greenwich Associates, commissioned by LinkedIn, revealed that 68% of investors (pensions, endowments, foundations) used social media to research asset management firms. Now it’s a frontline tool for decision-makers… but who would have thought that would be the case back then? Look now, and you’ll see many of the early adopters and most frequent Twitter users in 2013, are visible across the top 100 asset managers by inflows since that point (Blackrock, Vanguard, T.Rowe Price, Fidelity, Invesco, PIMCO).

Hundreds of billions of reasons to pay attention to the ESG fad

Wall Street

In 2004 U.N. Secretary-General Kofi Anan sent a letter to the leaders of the biggest investment firms asking them to start integrating ESG into their investment processes. Then by 2006, the UNPRI launched, with 63 investment companies (combined $6.7 trn AUM) signed to its charter. According to Harvard University, this shot up to 1,715 by 2018 ($81.7 trillion in AUM combined).

Most that were not in the position to integrate ESG into their investment process, shrewdly opted for silence. Some, unfortunately, rather publicly, proclaimed “We will not make any money.” Many of these articles have either been deleted or buried deep in the Google Search rankings at great cost.

ETF’s – ‘same suckers, new product’

Just below is a short excerpt Portfolio Adviser interview in 2017 with a fund manager comparing the boom in exchange-traded funds (ETFs) to the hysteria that led to the global financial crisis.

When asked about his comparison to the global financial crisis, Charles Plowden (former Baillie Gifford senior, said he suspects it’s the same investment bankers that came up with CDOs and CDSs in 2004, who “have found a new bunch of suckers to sucker”.

Fast-forward to today….and there are a lot more suckers (as the headline by Funds Europe indicates, here) - European ETFs surpass €1trn as ESG leads the way. We know that exchange-traded funds (ETFs) potentially make markets less efficient and cause stock market bubbles, but this is irrelevant to a return-chasing investor. We will never know whether Charles changed his mind, but what we do know, is that Baillie Gifford put out an announcement regarding his retirement last year.

10 years later and bitcoin still won’t go away

“So, That’s the End of Bitcoin Then” – Forbes. Was a famous article written after another bitcoin price collapse, that’s been well cited over time. You can probably understand why considering its recent highs in the media, a decade later.Just a few days ago a financial adviser even received death threats after launching an anti-cryptocurrency petition, such is the stark divide in opinion between the Main Street and Wall Street.It’s hasn’t been lost on BlackRock who recently filed to add Bitcoin futures to its funds.

Future trends (or fads) are an opportunity…

Ultimately, we all want our organisation to be up to date, innovative and nimble.  Those leaders who are brave enough to stick their heads above the parapet, in a positive way, to discuss incoming fads, trends, threats and opportunities can benefit from:

  1. Higher circulation - Viral, emerging topics get more clicks, simple as that; use it as a platform to talk about more important issues;
  2. Boosted sentiment among different audiences;  
  3. Higher brand awareness of their firm;
  4. Great social and website traffic.

But beware the curse of the naysayer. As the adage goes, if you’ve nothing good to say, say nothing at all. If you do, hopefully it’s moderately positive, and you’ll get by (even if you’re wrong).

So, what could the trends and fabs be in 2021?

  • Extinction Rebellion will be back banging on doors (we can’t ignore them forever). Anyone brave enough to open a constructive dialogue could win big.
  • New technology will continue to disrupt both front and back office functions in investment management and servicing - those that move to the beat will have the best dancing feet.
  • Investment platforms and influencers will continue to grow in influence within the sector – make the right friends, and fast.
  • Thematic ETF’s will become even more fashionable and clickbait-worthy = £$£
  • Anyone who even pretends to know the direction of Brexit (and future impact on financial services), will be rewarded.
  • Diversity initiatives including 30% Club, BAME etc. will continue to be empowered by mandated forces…public disclosures of public company workforce could intensify. But it must be authentic.