Most investors say they are investing for the long haul. They say they have a 10-50 year time horizon, but act emotionally on a time frame of weeks, quarters, and years. So how do you combat these behavioral temptations of chasing performance? How do you incentivize investors to behave in their own best interest?
Our friends at Ritholtz have a cool idea – they reduce their management fee the longer the client relationship. Love that idea.
Problem for my firm, is that we are already at the zero-bound of 0%! Ha! Long time readers know I manage a 0% management fee ETF (that owns other ETFs and all-in cost is 0.25%). I also manage 0% management fee separate accounts (that own ETFs with average cost around 0.55%).
So, while investors have removed one major hurdle to returns (high fees), the problem with the above scenarios, is that clients can still behave poorly. They can chase returns, close accounts, and move onto the next hot offering.
So, my question to my followers is this? What would be a good structure for investors that really want to put their money where their supposed goals are? I’d like to setup a series of accounts or funds that have the timeframe of being 10, 20, 30, 50 year goals. Holdings and rules totally transparent. You can’t withdraw except for normal reasons (death, RMD). If you do there would be some kind of trailing penalty. What’s the best structure here?
Let’s hear your thoughts!