One of the best arguments for how people make decisions based on emotion, even when (perhaps especially when) they are making decisions about money…
Especially after expenses, most actively-managed funds perform worse than their benchmark.
If you listen to many finance people talk about themselves and their industry, they’ll tell you how rational and analytical things are, how everyone’s looking at the numbers only, etc. And perhaps, on a day-to-day executional basis, they are.
But really, at the root of all the work these people are doing, is that the client, at one point, said to himself, “I’m going to pay a little more in order to have my money looked after by an actual person.”
If the customer were really making a rational decision, he would just put his money in low-cost index funds, and most fund managers would be flipping burgers at McDonalds.
About Matt Krause
Matt began his professional life as an import buyer, and since 2006 has been teaching companies how to connect with their investors and clients better. His clients work for companies like Allianz, 3M, P&G, Citibank, and Reckitt Benckiser. He also walked across Turkey and wrote a book about it.