Morningstar CEO Kunal Kapoor stressed that there has never been a better time for great advice during his opening remarks at the Morningstar Investment Conference in Chicago.
But, during a press briefing following the first day of the conference, Kapoor explained that great advice can be done at a reasonable price — regardless whether it’s active or passive management.
According to Kapoor, “the story’s not active versus passive; it’s high cost versus low cost.”
Kapoor addressed the notion of whether high costs makes sense for certain types of active management, to which he said “I don’t believe in high cost.”
“I believe good investment advice, including good active advice, can be delivered at very reasonable costs,” Kapoor told media.
Kapoor said that low fees are a great predictor of future performance in both indexing and active investing.
“And you want to have low fees in either instance,” he added.
Kapoor thinks that what’s happening in the retail asset management industry — the trend towards indexing or low cost — is basically a replay of what happened in the institutional space 30 years ago, where fees came down dramatically.
“I think while the headlines are right with the fact that it’s a dour time for asset management firms, [but] they’re still very profitable,” he said. “This is still a great business to be in. It’s just that we’re going from 40- to 50%-type margins to 20- to 25%-type margins. Guess what? Most industries would kill for that.”