Investors Have It So Good These Days

Ever been told you shouldn't take something for granted? This is another one of those lectures.

When I first entered the financial industry in 2003, an evolution was already underway. As I look back on the years leading up to my entry as well as my first few years in the business, so much has changed. Almost universally, that change has been a positive one for investors.

Check This Out, 20 Years Ago....

• The average household was just starting to install dial-up internet. There was no checking your investments online with a few clicks. If you wanted to know how your company stock was doing, you had to read the newspaper and find your ticker symbol in the business section.

• Stockbrokers ruled the landscape. Financial planning was barely a thing. If you wanted professional help, it was likely you were getting pitched the latest hot stock. That hot stock was usually some dog turd from the brokerage firm's own inventory they tried to polish up for you. Today, there is a greater emphasis on the non-investment components of finance such as insurance planning, tax reduction, retirement income, and estate planning.

• If you wanted to trade a stock, you had to do so through a stockbroker. I remember when my Mom sold a few blue chip stocks through her then Washington Mutual broker in the early 00's. She paid a commission in the neighborhood of $200 per trade. Now, anything more than $10/trade is exorbitant.

• Deregulation and the repeal of the consumer-protection oriented Glass-Steagall Act in the 90's fueled the massive trend of commercial banks (think Citi) entering the brokerage game. These banks went public, hyped up tech stocks in the early 00's (Kablam!!!!) and then a few years later packaged up garbage mortgage loans into insanely leveraged collateralized mortgage-backed debt (even more Kablam!!!). The evidence clearly indicates that financial regulation helps protect investors; in 2010, the Dodd-Frank Act consolidated regulatory agencies with new oversight initiatives, required greater transparency with derivatives (the mortgage backed products that blew up AIG, Lehman, Bear Stearns, and the stock market in general), and enhanced consumer protections. More recently, the Department of Labor rolled out a Fiduciary Standard which affects all licensed financial professions who provide advice regarding retirement accounts and specifically, rollovers (financial salespeople can no longer completely screw people with self-serving products, only partly screw now...). While the Trump administration has already dismantled chunks of Dodd-Frank and helped delay the full rollout of the Fiduciary Rule, many aspects of these industry and consumer protections remain. Your 401(k) thanks you for these safeguards.

• Investments were pitched based on some form of secret sauce. For example, we look at a stock's underlying fundamentals better than our competitors, so we know this stock will be a winner. Now, everyone has access to the same information at the same time. Thank you internet! It's practically impossible to outsmart the collective wisdom of millions of other investors. This is a big reason why we've seen the growth in popularity of the once looked down upon Index Fund. The modern sensible strategy is since it's extremely difficult to beat the market with timing schemes, it's best to replicate the market to achieve a viable long term return.

• When you bought investments in a taxable brokerage account, in order to track your cost basis (the purchase amount you don't have to pay cap gains on when you sell) you had to keep detailed records of the original purchase, subsequent purchases, and ALL reinvested dividends. If you were lucky enough to have a computer in the 90's and smart enough to understand spreadsheets back then, you at least had a leg up. Since 2012, your brokerage firm is required by law to track your cost basis for you. Not only does this ensure accurate reporting on your tax return so you stay in the IRS's good graces, but it dramatically reduces your time commitment and frustration when managing the tax consequences of your investments.

• If you wanted advice on your $50,000 account, forget it. Financial advisors sought out account minimums 5x to 10x that amount to realize specific profitability margins. Technology has taken a massive leap forward, and it's allowed financial advisors to serve lower account levels with greater efficiency to achieve similar profitability margins. This means younger folks with fewer assets have greater access to real advice. Yea, Millennials... Is there anything that isn't just handed to you?

• Advisory fees for investment accounts ran 1.25% - 2.5%. Now, the average fee is closer to 1%, although some Prominent Advisory Firms somehow still get away with convincing their clients that paying a 2% advisory fee is in their best interest. I used to look up to those guys. Then I read their official SEC disclosure detailing their pricing structure. Someone please tell them it's 2017.

• Your advisor almost always worked for a big name firm. We can systematically equate this with higher fees and a plethora of proprietary products (gotta pay for that Rolex, summer house, fancy office, and boat!). Today, there's at least a slightly higher likelihood that the advisor you interview for hire works for an independent advisory firm. Truly Independent Firms generally deliver more comprehensive advice at more competitive pricing.

• Investors were so dumb as a herd. But, the herd seems to be getting smarter. According to Dalbar's Quantitative Analysis of Investor Behavior, the average mutual fund investor's underperformance (compared to the benchmark) over the last 20 years has declined from 4.66% to 3.52%. Take away: DIY investors still make stupid investment decisions, albeit a little less stupid than they used to. Perhaps investors are becoming more aware of how their emotions can influence investing decisions.

I could keep going, but I'll stop here hoping you enjoyed my history lesson. While many so-called financial advisors still exhibit Cripplingly Bad Behavior, it's easier to find more honest advisors these days. Hint: we can help you if you're not sure how.

Today's investor experience doesn't have to be like the old days, which was the equivalent of walking to school uphill both ways in a snowstorm while being chased by a pack of hungry wolves. There is no reason why investors can't take advantage of the benefits of modern-day investing, and there's no doubt all the themes I touched on with continue to improve given more time.