It feels like we are on the cusp of major changes in the investment services industry. Of course one should always be cautious in making such a claim because the industry is notoriously reluctant to reform itself in substantive ways.
However — a wave of changes is coursing throughout society that is likely to pull a lot of things, including the investment services industry, along with it. Many institutions are being challenged like never before, and for good reason; they have failed to adapt to the changing needs of people. As a result, trust in many institutions is the lowest it has been in many decades. That record low level of trust is fomenting desire for meaningful change across many dimensions of society.
These trends were highlighted in recent coverage of the tenth anniversary of the finacial crisis of 2008. One of the key insights arising from the retrospectives is exactly how little has really changed. Exceptionally few financial executives went to jail for their misdeeds. Public policy doubled down on debt, which was the same tool that created the problems. Calls for a fiduciary rule for brokers has been deferred and diluted. In short, very little has changed in terms of how the industry operates.
One of the ways in which underlying desire for change has been meaningfully addressed, however, is in the area of investment research. Since the financial crisis in 2008, several people have created offerings that are independent, analytical and accessible to a wide audience. In short, they have been designed as antidotes to many of Wall Street’s failings.
Among the new offerings, zerohedge, a financial blog, is one of the most prominent. Begun in 2009, it is regularly infused with insightful and deeply analytical research which often challenges conventional perspectives. While it can certainly lean in a conspiratorial direction at times, it is staunchly independent and widely recognized as a top investment site. The fact that Bank of America actually blocked employee access to the site after several critical posts indicates both the politicized nature of financial information and zerohedge’s role as a useful alternative.
Another new offering is RealVision which was founded by industry veterans Grant Williams and Raoul Pal. The two came up with the idea because they “realized the media had let people down and the banks had let people down.” They believed that existing sources of financial information “just didn't want to tell people the bad things were out there and that they should pay attention."
The results make it pretty clear that these relatively new efforts have hit on something that investors want. For example, zerohedge.com enjoys 37.7 million sessions per month as of August 2018, according to wikipedia [here], and is regularly featured as a top investment site. Further, the success of Realvision was highlighted in a New York Times story [here].
It seems to me that a big part of what these “alternative” sources of research are providing is credible and high quality research. In other words, they are trustworthy in ways that so much Wall Street research is not. I think there are a lot of different trends that are affecting this, but it is analogous to the trends towards “craft” and “local” in food, beer, spirits and many other products and services. Interestingly, in many of these cases, quality is associated with smaller “craft” names because they are small, not in spite the fact that they are small.
While I highlight zerohedge and Realvision as being two of the more prominent providers of alternative research, they are emblematic of an increasingly long list of researchers who are doing the same thing: They are all trying to do investment research in a way that is different and better and ultimately more useful to investors.
Fortunately, Areté has also been able to share in this success. I recently started distributing Areté blog posts to the investment site realinvestmentadvice.com and in doing so enjoyed an increase in readership from hundreds to thousands. Further, the most recent posts were also picked up by zerohedge and when that happened, readership increased from thousands to tens of thousands.
In addition, I was also very pleased to learn that the posts have been performing well on the Financial Advisor IQ Think Tank repository of investment research. The site targets financial advisors and attracts over 100,000 visitors per month. It also accredits research for continuing education for Certified Financial Planners (CFPs). I was especially pleased to learn that Areté had topped the Think Tank leaderboard for engagement in September.
I take several messages from these accomplishments, all of which are very positive. First and foremost is that the content is useful and valuable. Of course Areté’s investors always have access to this content and can follow up on it with me at any time. Nonetheless, it is good to know that it also has much broader appeal. Related is the message that Areté can compete with the biggest and best financed investment companies in the world for quality research.
Finally, the content is resonating with exactly the right people — individual investors and conscientious advisors — the people who care most about what actually happens with the investments because they have skin in the game.
I also suspect the positive reception is due at least partly to the approach I take with investment commentary. It is NOT about peppering people with more facts. I think they are overwhelmed already.
Rather, I make a deliberate attempt to make things easier. I do that by distilling the many elements of the investment landscape and synthesizing them into understandable narratives about what it means. I firmly believe that there is a lot of great research out there, but precious little of it combines deep insight into a an accessible narrative that most investors can easily grasp.
So these very positive things have been happening with investment research, but elsewhere little else has really changed in terms of how investment services get delivered. In my opinion, whatever broad-based energy existed for fundamental change in the immediate aftermath of the financial crisis quickly dissipated as the market continued its upward march behind the power of continued quantitative easing.
Now with rates rising and the Fed’s balance sheet shrinking, it seems to be just a matter of time before the market’s run gets interrupted. When it does, not only will it (finally) provide opportunities to buy undervalued stocks, but it will also reveal a lot of unhealed wounds from the financial crisis. Demands for change will be reawakened and investors will (finally) push for investment services that are better and more efficiently delivered. All of this has the potential to be enormously beneficial to Areté and its investors.
In the meantime, I am always interested in talking to people who have similar interests in creating investment services that do a better job of serving investors. If you have any suggestions for me or know of someone I should get in contact with, please let me know. I strongly suspect there is a lot of potential in brainstorming and leveraging resources. Let’s see what we might be able to accomplish together!