Fisher Investments just issued its 2023 ADV. On the surface, the numbers look spectacular: AUM is up over $60 billion since roughly the bottom of the COVID crash and the client list has doubled. Evidently the firm's persistent messaging during the pandemic worked.
Retail investors got scared enough to make a change. If they were working with an advisor, the ads shook their confidence in those relationships . . . and the money moved in Fisher's direction.
But part of that ad campaign revolved around the power of modern portfolio theory to smooth the random walk in pursuit of better retirement outcomes. You know the pitch: there are a lot of bad products out there, mutual funds and annuities are expensive and inefficient.
Of course a lot of great advisors use great funds and annuities on their clients' behalf. And a lot of great advisors actually built portfolios that shielded nervous clients from the brunt of the bear market.
There isn't a lot in Fisher's AUM numbers that suggests that its ever-so-superior investment framework significantly outperformed the S&P 500. Unless there's some hidden compensating factor, all this looks like is a version of the random walk surrounded by a lot of hype.
(Fisher team, if you're reading this, I'd love to hear the hidden compensating factor. Let me know.)
After all, the core of the Fisher value proposition is the proprietary stock portfolio run under the Fisher Asset Management banner. At a glance, this represents about 85% of the firm's AUM. It's the core of what they do.
And we know how it performs. Fisher Asset Management files quarterly 13-F forms. Between the end of 2021, when the post-COVID bubble was essentially at its most swollen, and the end of 2022, the FAM universe shrank 17.5% against a 19.5% drop in the S&P 500.
Regardless of how those assets are segmented across strategic models, that portion of client accounts captured 90% of the downside someone who simply bought the SPY and embraced the random walk. Maybe that's a significant bear market buffer from a mathematical POV but you know how clients think: any loss makes them anxious and saving them 2 points isn't much comfort when they're still down 17%.
And remember, a lot of these clients had to be talked into liquidating annuities. They wanted a nice, reliable ride. Those instruments might have been expensive but they still functioned as insurance against a bad year.
Those clients aren't likely to be happy if their drawdown was anywhere near 17% last year. Where's their smooth ride? Where's their low-risk experience?
After all, these are best-case numbers. They don't reflect any organic flows. Maybe Fisher fed a lot of money to FAM, obscuring even worse performance. That would make sense given what we know about the firm's expanding market share.
The firm did well in the pandemic era. But while the number of clients doubled between the 2020 crash and today, the average account balance didn't move much in the right direction.
The average mass market account in March 2020 clocked in at a healthy $625,000. Today, there's 5% less in the typical Fisher account at this level. And HNW accounts haven't moved up at all.
Remember, the base here is roughly the worst moment of the COVID crash, give or take a day. We aren't comparing these accounts to where they were before the pandemic.This is from the bottom to now.
Admittedly, half of these accounts are new money. But the S&P 500 is up a healthy 80% from its 2020 low, even counting last year's retreat. Surely the clients who were on the books then have benefited from that huge rebound and the Fed's zero-rate largesse.
Reverse the engineering. If the original half of Fisher's current non-HNW clients are up anything like 80% in the last three years, the ones who signed up in the COVID era are extremely small on average. And the math on the HNW contingent simply doesn't work.
All of these investors would be up 80% if they bought a vanilla S&P 500 fund in March 2020 and held on. That's just how exaggerated the COVID plunge and the bubble that followed got.
Maybe I'm missing something. But FAM filings show roughly 48% AUM gains between March 2020 and the end of last year. Extend the curve a little with this year's market bounce and for the sake of argument we can add another 10% or so to estimate the current figure . . . maybe more, maybe less.
I'm just not seeing a scenario where Fisher achieved more than 50-60% of its AUM expansion from client portfolio returns. The rest is organic flows: new money coming in.
There are two takeaways here. The first is simple: clients Fisher captured aren't paying attention to the random walk. They're willing to sacrifice substantial upside in order to get even minimal downside protection.
If those clients are happy with the Fisher experience, they should be happy with you. You don't have to provide a more dramatic performance benefit. Even a few percentage points is enough.
And if you are able to reasonably deliver a better risk-return profile, you've got a real edge here. The world is your oyster. Just make sure that you give clients who want reliable income a meaningful solution. And for those who want something more aggressive, do what you can to beat the S&P 500 over time.
Undoubtedly Fisher segments clients to provide differentiated glide paths. But when you take the universe as a whole, it's hard to say how much better off they are than they would be on the random walk.
Fisher could probably park his people in a generic SPY clone strategy and they'd be pretty happy. How would you do it?
34000 x 595 = 20 billion
