^Defintely ripe for change. Agreed there. But your a CFA Charterholder so your example is not the norm. Doctors, tech start ups, etc. have likely 1/10 your financial knowledge and probably have enough wealth coupled with busy life to be ok with 50-100bp. Not all, but enough to keep the engine running.
Having come from a non-financial industry before doing CFA studies and finance related stuff, I can say that for the vast majority of people, it is nearly impossible to believe that indexing is better than having someone smart picking securities for you, and they think that they can choose people smart enough to outperform. So they will pay 1% of AUM easily, or 1-and-10 or whatever.
Most of us who know more may believe that active management can add value (or not), but we at least know that alpha is not an easy game and being smart isn’t enough on its own.
A lot of guys making money today outside of finance are in industries with a high return to brainpower and so it’s easy to convince them that the fee structures are worth paying for by playing up that experience.
In 20 years, that may no longer be the case, but for now, I think it will be a while before this changes.
I_am_the_highway,
just curious, what industry did you move into?
I’m back, turns out there aren’t that many jobs that allow you to go to 5-course champagne dinners on a weekly basis…
Grass was not greener?
For some time it was…
I left finance to work as a programmer for more than double my Finance salary. And another benefit is that I no longer have restrictions on my investment activities.
Honestly, I think all the learning that I put into Finance only benefitted me in managing my own personal investments rather than managing others’ money.
Can you describe in detail how you changed your career?
left for “real” industry as in real estate!! Build some buildings…brick and mortar except it’s H beams and rebars and concrete!
Not sure if this is enough detail:
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Graduated with a MS in Financial Engineering in 2009.
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Could not find any work for a year so settled for a no-name investment firm managing a few small hedge funds as a trader, quant analyst, and fund accountant. They literally paid me only like $40K/yr to do the job of 3 people. This was 2010. I got fired in 2015. This was a firm on the West Coast, not a huge market for quant funds.
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While I was at that noname investment firm, I tried really hard to jump ship pretty much from the 2nd year till the 5th with no dice. I even passed all 3 levels of the CFA during the time.
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After I got fired, I decided to switch to doing Machine Learning… I had an engineering background from my undergrad days though. I worked on a certificate in Machine Learning from Udacity and did a lot of self study during the time while looking for another job. It was tough trying to break into a different line of work but I managed after about a year and landed a quant machine learning position at an investment firm in a small town in the middle of nowhere. Pay was great: about 90K/yr.
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I stayed at that small town investment firm for about 18 months before I wanted to move back with my family (was away from wife during the time I was at that firm) There were few Finance opportunities but plenty of Machine Learning jobs in her town so I jumped ship to one. Pay is over 100K/yr.
your quant fund couldn’t make money from 2009-2015?
Welcome back, I_Am_The_Highway. I was wondering if you could share more about the turn of events, and perhaps you can comment on what surprised you to the upside “in the industry” (and maybe share with us what industry that was, or at least your functional role) and also what surprised you to the downside. Also, where in finance are you now? I think most people thought you were in an area of equities active management, which continues to face headwinds as I’m sure you’ve noticed. The fees still have to come down but perhaps the “base level” of income in finance/investing is still higher than most other industries, in spite of all of the flows from active to passive and fee structure pressure that will likely continue as a consequence…
Fund closed and fired me in 2015. Guess they deserved that fate.
damn. thought i was gonna get some knowledge on machine learning, or plumbing.
@ numi:
I was in multi-asset buyside (FA) before and switched to origination in downstream energy. It was a really sleeves-up environment with huge cost pressure at the time (main reason for leaving, ppl in AM really don’t realize how much slack there is still in the industry). I’m back at multi-asset buyside with a strong programming/ML focus (have my own AUM as well though). Business is strong and growing well (~5% net growth a year).
Did you learn python before taking course in Udacity?
I had learned Matlab, C++, and Java in college many years ago abd picked up Python along the way when learning ML with Udacity.