Isn't a big part of the issue with actively managed funds the fees, which usually wipe out any gains above index funds. Wouldn't the market correction be to close the delta in fees between active and passively managed funds to encourage more people to go the active route?
A lot of the grousing about passively managed funds come from people who are running actively managed funds that charge huge fees to under perform passive management. By lowering fees, actively managed funds should be able to do a better net and to be able to attract more investors.
Any sort of government solution to index funds getting large would basically be protection for these actively managed funds. There are actively managed funds that can beat passive funds, but it's incredibly difficult to do so when you charge a 2% fee.
You can't run most active management strategies on anything approaching the average passive fee structure. Additionally, you run into problems with scale. An S&P 500 tracking fund scales extremely well and could add several billion of AUM without having to incur additional expenses. A long only equity fund would probably not be able to do the same without hiring more people, building more infrastructure, etc.
I get that the fees can't be comparable, but without passive management, active management fees are unchecked, and they rose a lot over time.
I'm willing to agree that it should cost an order of magnitude more for an actively managed fee, but most are beyond that.
A lot of this seems like plain greed to me, combined with grift and graft. A lot of workplace plans try to funnel people into actively managed funds that often charge really high fees.
I'm not sure how fees are unchecked. Active management fees have fallen quite a bit over the past 5+ years. A lot of mediocre managers have gone out of business and many more probably will as well. Additionally, new fund launches are near all-time lows.
Lots of active funds just change the weights of their capital allocation a bit compared to their benchmark. So there's not necessarily more people or infrastructure required - just analyzing a few companies in more detail.
People are fleeing to index funds, which is what is spurring posts like this.
There are all of these complaints from people who run actively managed funds, never once mentioning that the fees might be why so much capital is going to passively managed funds.
People like myself who invest exclusively in index funds do so because the fees charged by actively managed funds are not supported by performance.
People are investing more in index funds because we've had a ten year bull market and index fund fees have dropped in an attempt for competition for assets.
Most active management is probably not appropriate for most individual investors because their investment needs and timelines are much different than high net worth individuals/pensions/foundations, etc.
A lot of the grousing about passively managed funds come from people who are running actively managed funds that charge huge fees to under perform passive management. By lowering fees, actively managed funds should be able to do a better net and to be able to attract more investors.
Any sort of government solution to index funds getting large would basically be protection for these actively managed funds. There are actively managed funds that can beat passive funds, but it's incredibly difficult to do so when you charge a 2% fee.