A quick update, as I am still trying to get my California legs under me. I’m staying at a funky hotel on Sunset, adapting to the 3 hour time difference.

Arrived yesterday afternoon, had a few quick meetings and conferences with prospective clients. Meetings today are with current clients.

Had a great dinner & conversation last night with a friend at Picca, a hot Peruvian restaurant (awesome food and libations). He is a quant who has developed a few very cool new ETFs — already has 2 out that are quite successful. He has 2 more coming before year’s end, and a queue of really fascinating ETF ideas.

We talked about the idea of disruption — the ability of an individual (or small firm) with a good idea to upend an industry by doing something faster/cheaper/better. Some disruptions of recent years: Indexing, low cost ETFs, discount brokerage.

What disruptions are coming? The death of mutual funds, end of the Wall Street hegemony, excess fees, 401ks, the set and forget Buy & Hold portfolios, 529 plans, life cycle funds, and so much more.

Anyway, I went out to dinner late, got in even later, and I have a full day ahead. Be back shortly . . .

Category: Markets

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18 Responses to “Disruption: A Brief L.A. Sojourn”

  1. Iamthe50percent says:

    I’d be interested in hearing those thoughts about the death of 401K’s.

  2. Rightline says:

    529 plans are the first that should go. If they are not modified to make them more investment friendly, they are doomed. Only one asset allocation change each year is absurd in these times. I enrolled my kids in them as soon as they were born and put all their christmas and birtday money, etc in. I probably would not have saved as much without the 529 but I feel hamstrung by the restrictions. I am in NJ Best managed by Franklin Templeton. Performance has been OK, almost everything else stinks.

  3. Not the death of the 401k — but they way they are handled currently is a disaster. Needs to be disrupted

  4. taylorhr says:

    I do not think that mutual funds will ever go away. They certainly may have a big change in the fee structure but the ability to invest systematically and in dollar amounts instead of shares will keep them around unless ETFs develop those abilities. Of course if they do that, they will be virtually one and the same.

  5. Orange14 says:

    The big issue with the 401(k) is how to handle the financial transaction with the employer. IRAs were/are simple to deal with as it is managed directly by the individual with pre-tax contributions. With the 401(k) you have both the employer and employee contribution and I suspect employers look to mutual fund or insurance companies to handle all the paperwork (my former employer used Prudential and we had a fair selection of funds to invest in).

  6. denim says:

    Perhaps the life insurance industry will offer a 401k with guaranteed value as an annuity at ones retirement date…even with a limited cola.

  7. dead hobo says:

    This will be more universal than Wall Street oriented …

    I just changed from DSL to cable internet access and improved my speed many times over. I also dropped AT&T land line service in favor of ooma voip, which costs a couple of bucks a month for 911 services and taxes. My total cost out for internet access and phone is much less than before. With ooma I get free local and US long distance calls with perfect clarity, plus the usual features one normally expects with phone service. Amazon sells it.

    Thus, I expect the land line business is dying, improving the internet backbone will create innovations not yet imagined, the cell companies are threatened if voip can be built into phones where there is universal wifi access (ooma currently offers an app for $5 that provides less than 2 cents a minute access on cell phones if wifi is present and you are an ooma customer. It doesn’t take much imagination to see where this innovation is headed.) Universal inexpensive wifi could shut down the cell companies, almost overnight.

  8. CANDollar says:

    I think another disruption, or potential disruption, because it is still not integrated into financial thought and analysis by the mainstream are Mr. Taleb’s ideas about risk.
    Bell curve’s still seems to rule the day….and without realizing the nature of risk as described by Taleb commentators still earnestly ask, “What is the next black swan?”

    When his ideas are better recognized (such as through Hybrid Portfolio Theory) what will leading edge portfolios look like?

  9. louis says:

    You got time for a golf game? Need a tour of the Housing carnage?

  10. SWMOD52 says:

    401k administration needs disruption, streamlining. We manage our funds through Fidelity but there is an intermdiary for some reason through UBS. In the end it all ends up in a so call “managed” mutual fund with expenses. I cannot see any value added by all this. It all seems like a waste of money that either the company can keep or that they can pass to employees. We should be able save in a 401k with a steamlined approach that goes directling into a total stock market index with no more than %.10 expenses.

    If our elected officials care at all about the common folks this should get done.

  11. rd says:

    My thoughts on coming disrupters over the next decade or two:

    1. The death of TBTF – another financial crisis/crash in the next 5 years will undermine the credibility of every financial regulator and large financial institution around the world
    2. 401k/403b expenses and structure – more information is going to awaken the masses to the high costs
    3. Death of pensions – already largely gone from the private sector, they will become increasingly rare in the public sector – switch from pension plan managers to 401ks/403bs will be a major impact to private equity
    4. Smoother transitions from IRAs/401ks/403bs to lower-cost annuities at retirement driven by death of pensions – the pension management industry will be trying to figure out how to switch to becoming individual annuity providers
    5. Increase in capital gains, dividends, carried interest, and estate taxes. The wealthy having a 15% federal tax burden with the middle class carrying a 25% or greater (including payroll taxes) burden will be socially and fiscally unacceptable.

    companies like Vanguard, Schwab, T Rowe Price, Fidelity are already at the forefront of many of these disruptions and will probably continue to thrive.

  12. ashpelham2 says:

    There certainly is a lot of talk here about 401(k) changes. The problem with cutting out the middle man, as many of you are saying in so many words, is the problem of fiduciary responsibility. Companies/firms don’t want to shoulder any or all of that load, so they hire advisors in the middle, who then recommend 401(k) options, assuming some responsibility for those decisions. And they should be paid for taking that responsibility.

    But what I see with my current firm is direct sales of the plans to very large institutions, with no advisory in the middle. Could this work with much smaller clients? Say a 100 man firm with 7 million in assets? So far, it hasn’t been attempted, and I suggest that it hasn’t been done because of all that lawsuit risk.

    On the subject of annuities, I might be persuing a career option the very near future to directly market annuity and insurance products to clients, with guarantees and all that jazz, with no wholesaler involved other than me. Anyone care to offer any general advice on taking on a gig like that, with my very limited information I’ve provided?

  13. pintelho says:

    I have a few great ETF ideas myself but nobody will listen…And more importantly i dont know how to do anything about them…Ritholtz you want to hear about these?

  14. jaymaster says:

    3D printing will probably lead to some serious disruptions. And it is practical now. http://www.shapeways.com/

    Unlike some forecasters, I don’t see it eliminating traditional factories any time soon. But it does allow much cheaper entry into markets. A prototype that would have traditionally cost tens of thousands of dollars to build can now be made for a couple hundred. And manufacturing of smaller volumes of some products can be practical with 3D printing, which can eliminate the need for hundreds of thousands of dollars in tooling.

    Decent software is already available for free. And while I suspect many folks will discover that it’s not exactly a piece of cake to design a functioning product, the task is not beyond a reasonably intelligent person who is willing to invest some time in it.

  15. Equityval says:

    A Ritholtz trip without a market crash???? There must be a rift in the time/space continuum.

  16. Niskyboy says:

    BR — Can you clarify what you mean with the reference to “set and forget Buy and Hold portfolios”? Are you saying that the idea of buy-and-hold is now dead, or the opposite, that a new twist on buy-and-hold is coming?

    Time, of course, is the only real advantage an individual has over professional traders and brokers. That, and the stomach to ignore the folks who every day shout very persuasively either “Buy — Buy Now!!” or “Sell — Sell Now!!”

    Many thanks.

  17. philipat says:

    NOW I understand why the market has been doing such wild things this week!!

  18. ShakyShot says:

    ETFs and ETNs intended to enable “Buy and Hold” are available that move in and out of equities based on technicals of the market and/or volatility. Examples are VQT, TNDQ, VSPR. For taxable accounts, and assuming long term holding, it appears the ETN form has great tax advantage over the traditional ETF form. Yes???
    BR, why not identify to us what the already “quite successful” ETFs are.