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Why the competition between Asset Mangers is important

May 26, 2018

 

Yesterday evening I attended my son's volleyball match.

He is sixteen years old and the match was a regional Under 20 semifinal, and he was summoned just to be there, but in reality the leader, who was also the team captain, didn't do his best in the first 2 sets, and that made the coach make Lorenzo play after the second set, and he did two aces (points done with a serve) and he gained the coach's trust for the third set, which the team then won partly thanks to his good performance (I'm biased so I can't exceed with adjectives...).

Halfway through the fourth set the coach made the leader to play again, who was completely transformed, and he played really well and carried the game with a 3 - 2 victory.

Why have I made this example? It's because it's the apotheosis of how important is competition.

 

REAL WORLD

A person sitting on their own results many times don't even realize that they can do way better and think they are doing their best, while in reality they're just offering a mediocre performance, maybe while blaming others or using excuses, then when competing with someone who wants to prove that he's also good and deserves things, the competition flame ignites again and then they're back to doing their best.

This also happens in the workplace and in the investment portfolios management.

Competition, which is innate in us when we are young and that gets taught in sport, gets pushed away in school, where teachers try to flatten the differences and which is completely avoided in all ways in the working world.

 

FINANCE

There's competition in finance, sure, only on the funds, which have a daily track record, and they offer their providers’ results with transparency, of which most of the time, though, avoid competition masking themselves behind benchmarks, maybe not even on their will, since the society they work for requires strict processes and little headroom to offset from the benchmark, and the really active providers that are willing to put things on the table to try beating the market systematically aren't many.

 

ASSET MANAGEMENT

Asset Managers, Wealth Managers and Financial Advisors that want to compete and show their results with transparency are even less, and this is reflected on the yields lower than what they could actually do, like in the example of player I mentioned before, being sure unless proven wrong of their leader role.

 

So for asset management movement competition and transparency should be promoted, to have a constant incentive for the actors to perform to their best when they have to give a good yield to their client, to risk when it's needed and to think more on the choices to make or not, so that the push towards improvement and towards a real client value can happen, or else losing management commissions, without giving a real value to the client, can make you suddenly find yourself on a bench, which in volleyball is a game, but which in the real work world it could be way worse.

 

STIMULUS

So how should you stimulate Asset Managers, Wealth Managers, Family Offices, Financial Advisors, and Private Bankers etc...? To improve themselves and prove that they're really better than others or at least to demonstrate that they deserve the trust of their clients?

Looking at what exists in the web world, there's a big example to improve and to push to professional level, social trading.

Social trading platforms like eToro let short term speculators copy the best Traders (with a borderline mechanism, but this isn't the subject) and to potentially get the same profits of the traders.

 

TRANSPARENCY

Competition derives from the fact that the traders's results are visible to all for better or worse, so traders are stimulated to do their best to make as many people as possible copy them.

Sadly statistics say that 90% of traders lose money in the long run and the volatility of their earnings is really high, so copying a trader that had 80% of profitability the year before is a risk that almost none of the "copiers" can really understand.

 

SOCIAL INVESTING

But the socialization world is intelligent and it deserves to get perfectioned, if you replace traders with professional Asset and Wealth Managers, which work with a correct diversification and risk management logic, you can attract long term investors that want professional services and no uncertain earnings, that can benefit from sane competition that characterizes participants to the "Social Investing" platform.

This is the PHI project, Hybrid Platforming for Investing, with which we earned in PHI Tokens to reduce the industry's distribution costs.

DB

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