These are pretty strong words, given they are coming from ex-Morgan Stanley Andy Xie:
But institutional investors are intermediaries, too. Why should savers give them money to manage? Not for superior performance: More than 90 per cent of institutional investors underperform market indexes. The main justification is that they bring down costs of information acquisition and processing, as well as transactions. This justification looks shakier by the day. Any individual can have access to as much information as a fund manager at virtually no cost. I’m afraid the financial services industry is likely to decline structurally.
As financial services industry loses value-added to customers and the real economy, it is increasingly dependent on gaming the system and profiting from customer ignorance. This makes the industry and financial market more volatile and bubble-prone. In the last financial crisis, the financial sector survived by holding the real economy hostage.
Unless policymakers understand that the financial industry isn’t necessary for the real economy anymore, and that it should scale down dramatically, the sector will remain a gigantic parasite on top of the real economy.
It’s all part of a thought piece where he outlines how technology will remove inefficiencies in the services industry, and make waves of people in developed countries redundant, as it already has for manufacturing.
You can read the full (long) piece here.