Ken Fisher is bullish on next year's market and economy but decidedly bearish on the future of RIAs.
Implementation of the Dodd-Frank Act's fiduciary features would be the death knell for RIAs, he predicts. Within a decade, the entire channel would be absorbed by broker-dealers.
The famed value investor and chairman and CEO of Fisher Investments manages $50 billion in assets of prominent institutions and affluent individuals. He developed the price/sales ratio and is well known for groundbreaking research on investment cycles. In 1990, Fisher called the start of the decade's booming bull market.
Son of the legendary investor Phillip A. Fisher, Ken, 62, has written Forbes' Portfolio Strategy column for 29 years. His most recent book — his 10th — is Plan Your Prosperity (Wiley-2012).
In two recent phone interviews with ThinkAdvisor, the money manager, speaking from his Woodside, Calif., offices, expounded on the game-changing effects of Dodd-Frank, dissed the Federal Reserve and Securities and Exchange Commission, and lay open his investment strategy for next year.
Here are highlights from those conversations:
ThinkAdvisor: What should advisors be thinking about most right now?
Fisher: If you're a BD, get out your knife and fork and get ready to eat the RIAs as dessert because that's probably where it's going. If you're an RIA, you'd better get un-naïve: the RIA world is at threat of being taken over by BDs in a regulatory sense. There's a good chance that the entire RIA world is gone in 10 years. The SEC doesn't seem to understand what it's doing.
Please elaborate.
All the features of the potential fiduciary standard, including mandatory arbitration elimination, are likely to backfire and blow back — maybe fatally — on the naïve RIA world. BDs will likely subsume and exterminate the RIA world because the BDs would like to take it over: Money has been coming out of BDs and going into RIAs for 40 years. The RIA world has been growing rapidly at the expense of the BD world. And the BD world hates that.
But isn't there a great deal of financial services lobbying happening in Washington?
The RIA world doesn't lobby very well; the BD world does. The BD world always has been the "evil empire" and is effectively posturing the regulators for their benefit in all this stuff coming out of Dodd-Frank pertaining to the interrelationship between BDs and RIAs.
What's the BD world's real strength?
The big BDs have seen huge increases in concentration of market share. Twenty firms have all the money, and they're going to keep getting more because they have all the lobbying power. The RIA world is native in thinking implementation of the fiduciary standard will be done in ways that will impede the BDs and help the RIAs. That's stupid, wrong and backward.
What else might happen?
If there's one thing the BD world would love is to have the RIA world taken over by [the Financial Industry Regulatory Authority] — and the SEC isn't totally opposed to that. I don't think they've thought through the implications. Many BDs try to play a hybrid role. A lot of them claim to be fee-only advisors when in fact they are not. There doesn't seem to be any true discipline applied.
What's your take on the temporary fix for the debt ceiling-default deadlock, which allowed the government to reopen after its 16-day October shutdown?
Wait a minute! The government isn't shut down? I haven't seen them doing anything! During the whole shutdown the market was doing just fine. Markets move in advance of such events. The shutdown isn't something most of America really cares about — just journalists!
What's your outlook for the economy next year?
It's moving along in a slow but steady recovery. Markets move in advance of the economy. The stock market is one of the strongest of the 10 components of the leading economic indicator series (LEI).
To what extent has quantitative easing been of help?
I'm eagerly waiting for it to be over. That's the most bullish thing we can do. Everybody under the sun has got quantitative easing wrong. It's not a stimulus; it's depressive. We're doing well not because of it but despite it. It flattens the yield curve and slows things down. Historically, the steeper the slope, the more bullish for the economy ahead.
But the Fed insists that quantitative easing is a stimulus.
They say it is – but they lie a lot. Central bankers don't necessarily tell the truth. [Fed Chairman Ben] Bernanke's goal has been not to increase the quantity of money but to build bank balance sheets, which he has done very successfully. Quantitative easing doesn't increase the quantity of money. That's gone up less in this expansion than any economic expansion in our lifetime.
But isn't Bernanke pulling the wool over Americans' eyes in saying that quantitative easing is stimulating the economy?
It has never been incumbent on central bankers to be open, transparent and to tell the truth. If they did, somebody would trade ahead of them and profit. Central banks have never been particularly straight-up. Some things — like God's little green apples — are what they appear to be. Central banks are one of those things that aren't exactly the way they appear.
Are we still in a long bull market?
We're moving slowly into the back half of the bull market. [Great stock picker] John Templeton said bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. We've got one foot in skepticism and the other in optimism. Everything takes a long time in bull markets. We're five years into this one and haven't reached optimism yet. That means we've got years to get to euphoria. Standard corrections can pop up at any point, but we have a long period of bull market to go because we haven't got past all the skepticism.
What's a specific sign of that?
When Twitter came out [on Nov. 7], it had a spectacularly successful IPO, but most of the other IPOs that same week did badly: they came out on the low end of their price range, and some were even pulled back and never brought to market. That was a sign there isn't any kind of real optimism and euphoria: If there were euphoria, they wouldn't come out on the low end.
What are the chances of a recession next year?
You can predict the economy six months out by looking at the LEI. It always works. Not only hasn't it fallen; it's been going up. We've never, ever had a recession while it was high and rising — never, ever, ever.
What impact will problems with the Affordable Care Act website and difficulty in enrolling in insurance plans have on the market?
