Money Managers Aren’t Dead
They still have a role to play—and ways to get paid—even in the age of zero-fee funds.
“Many academics have concluded that the value of investment advice is virtually zero,” Princeton economists William Baumol and Burton Malkiel wrote in 1968. “There seems to be no evidence that the selections of professional investment men are superior to selections that are made by throwing darts at the Wall Street Journal.”
This was at the time a fringe belief outside the ivory tower. The booming U.S. mutual fund industry, led by Fidelity Investments, had quintupled in size over the previous decade on the promise of market-beating returns and the reality of a long bull market. While the bear market that followed shrank the industry by a third, most were dismissive in 1976 when John Bogle’s Vanguard Group Inc. launched the first fund for retail investors that took the academic skepticism about investment management to heart and simply aimed to track the performance of the Standard & Poor’s 500-stock index. “I can’t believe that the great mass of investors are going to be satisfied with an ultimate goal of just achieving average returns,” said Ned Johnson, then near the start of his long run as Fidelity’s chief executive officer, to the Boston Globe.