Closest to the customer vs suppliers
Courtesy of Joshua M Brown
This week Apple confirmed that it would begin shipping products with chips it designs by itself. They’re replacing chips that Intel used to make for them and they claim the graphics performance will now be better. We already know they’ll save money. One analyst estimates that Apple is now making 42% of the iPhone’s components by itself versus only 8% five years ago. That’s a dramatic shift.
I was thinking about this concept in terms of the wealth management industry. One of the big trends you’re going to see is more proprietary investment strategies from large RIA firms. They’ll use technology and direct indexing platforms to build their own versions of the popular ETFs they currently use. Why bother? Customization for each client, tax loss harvesting opportunities, ESG overlays, there are a lot of possibilities when you can build your own index-like strategies and fine-tune, as well as market them as proprietary. I don’t think ETFs have anything to worry about. They’ll always be the simplest option and the default vehicles for most investors / investment advisors. I just think there’s something sexier and more advanced that’s going to capture a whole bunch of share going forward.
Apple knows a very big thing. It knows that iPhone buyers don’t really care whose chips and transistors are in the phone. They just want the phone and they have the relationship with Apple. Not with Qualcomm or Intel.
Advisors know this too. Very few advisors market themselves as resellers of a particular fund supplier. I know there are “Vanguard guys” and “Dimensional shops” but that’s going away. Vanguard’s not the only provider of cheap index products anymore and they’ve begun offering advice directly. Dimension just announced they’re going to start launching their own ETFs for the first time ever, which takes the whole “exclusivity” appeal away from RIAs who are in the fold. Advisors aren’t marketing the components they use to clients. They’re selling themselves. The components are beside the point. Clients will almost never choose an advisor strictly on the basis of what fund families comprise that advisor’s asset allocation model.
I get into this topic and more on the new episode of my podcast, The Compound Show. New episodes go up every Friday morning. I’ve spent the summer revamping the podcast and now it’s going to be a big focus of mine going forward. Hit the links below to get it on your favorite podcast app. And be sure to leave me a rating and review, it helps a lot. 
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