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I saw this on the back page of today’s Wall St Journal.
“On this day in 1971, Wells Fargo launched the world’s first stock-index fund. One mutual-fund manager’s reaction: “If people start believing this random-walk garbage and switch to index funds, a lot of $80,000-ayear portfolio managers and analysts will be replaced by $16,000-a-year computer clerks. It just can’t happen.”
The 1971 view is obsolete. There is no need for a computer clerk.
Harold well said. I have taken care of all investments since I was 18 years old. At 80, my best investments except for Apple stock, has been the index VOO, the S&P 500. So happy my education, and reading investment books, along with Humble Dollar helped get me to a good place.
In the 70’s, it was index funds.
In the 2010’s – 2020’s, in 401k/403b plans, advisors never had a foothold and the battle is being won by target date investments.
60+% of all 401(k) plan participants hold at least some investments in target-date funds (TDFs), For plans administered by Vanguard, that specific participant adoption rate sits even higher at roughly 85% due to automatic enrollment policies. Target Date Investments now represent about 40% of all 401k assets, approaching $4 Trillion!
In many (perhaps most) plans, the target date fund is delivered as a separate investment choice, resulting in a “mixed use” outcome within the plan. For most workers, whose only liquid assets are in their employer-sponsored plan, that is suboptimal. For the minority who have assets in multiple plans, in IRAs and taxable accounts, “mixed use” is the natural result – where asset decisions are not effectively coordinated.
In the 2030’s, assuming ERISA litigation continues at its current pace, expect to see target date investments increasingly limit allocations to index investments. Once target date investment managers and plan sponsors become savvy about transparency and decumulation (they are not there yet), expect to see plan sponsors increase use of asset retention, account consolidation and asset aggregation strategies coupled with target date investment allocations.
Today, ~55% of all 401k plans have an asset management service, 80+% among large/jumbo plans. However, only ~8% of participants use that service. Typically, managed account services focus solely on the assets in the plan (it typically isn’t a holistic financial planning service, including, for example, social security claiming decisions), and they seldom offer investment advice that is substantially better than a properly designed, low cost, target date investment.
In recent litigation, Plaintiffs argue that if a managed account fails to use personalized data like outside assets, salary, or risk tolerance, charging extra fees breaches ERISA prudence rules.
Once plan sponsors have 5 – 10 years of usage and cost data regarding managed accounts, the number offering the service and their use will likely decline … Instead, expect to see plan sponsors adopt target date investments that are hyper-personalized, hyper customized based on:
While service providers increasingly try to merge retirement savings with wealth management, expect managed account/active management to be much more concentrated among only those who have accumulated significant assets/a lifetime of savings.
Harold, this is a great piece of history. I was confused at first because I wrote something similar a few months ago that said that Vanguard created the first index fund. Checking just now, it seems that Wells Fargo created the first Institutional Fund for their pension clients, and Vanguard created the first Retail Fund for average investors. Both noteworthy events. Thanks for sharing this.