Benjamin Felix

August 3, 2018

Episode 2: Indexing is Here to Stay

Benjamin Felix

August 3, 2018

Key Points From This Episode:

The underperformance of value stocks [0:02:45]
Are we in a Winner Take All market? [0:04:19]
Facebook’s crash [0:05:03]
Global value performance [0:05:06]
Canadian value premium at ~+5.5% [0:07:17]
Rebalancing into the pain [0:08:39]
Factor diversification [0:09:00]
Having a philosophy and sticking with it [0:09:56]
Index fund flows are slowing down in the US [0:11:06]
Canadian active funds are still dominating passive ETFs [0:11:06]
Markets are still efficient [0:13:28]
Deciding to be an index investor takes work [0:15:23]
Fewer highly skilled active managers make markets more efficient [0:15:58]
Canadians might need to buy real estate to retire [0:22:34]
Doctors were sold out by MD Management [0:23:14]
Should you listen to the yield curve? [0:24:42]
Michael Batnick’s chart crimes [0:28:50]
DFA’s weights vs. the S&P 500 weights [0:29:30]

Read the Transcript:

Ben Felix: This is The Rational Reminder podcast, a weekly reality check on sensible investing and financial decision-making for Canadians. We are hosted by me, Benjamin Felix and Cameron Passmore.

Welcome to The Rational Reminder with Cameron and Ben. I want to talk a little bit today about value stocks. So we put an emphasis on value stocks in our client's portfolios and our own portfolios too. We're not value investors like Warren Buffet is, we're not analyzing companies and finding cheap companies relative to their future earnings or whatever, those guys do. We don't really believe that kind of value, but what we do is total market investing using index funds or funds from Dimensional Fund Advisors. But we use funds from Dimensional Fund Advisors that have more weightened value stocks than the market does.

Cameron Passmore: We should probably define a value stock, I guess, by their definition.

Ben Felix: So a value stock is a stock that has a low price relative to its book value. The market will price stocks based on their expected future earnings. So if a company has relatively low expected future earnings, then the price will not be that much greater than the company's book value or its assets.

Cameron Passmore: It's basically a story about the price of the stocks, so the stock's price goes down, it becomes a better value to acquire in simple terms. So it's really a story about the price. The cheaper you buy something, all things being equal, you'll have a higher expected return.

Ben Felix: And you can look at price relative to book value, price relative to earnings, they're both ways to define a value stock. The academic literature tends to favor price to book.

Cameron Passmore: Correct.

Ben Felix: Anyway, so in the US, the value premium since 1928 through 2017 has been about 3.5%. So value stocks minus growth stocks, so the return of value stocks minus the return of growth stocks has been positive 3.5%.

Cameron Passmore: So in simple terms, shares whose price has gone down typically outperform a pool of shares whose price has gone up by about 3.5% a year.

Ben Felix: Right. So the cheaper stocks outperform the more expensive stocks in the US as far as we have data going back to 1928, outperformed by 3.5%.

Cameron Passmore: And there's lots of reason for that. And some people say it's a behavioral reason, people overreact and sell off stocks. Other people say it's a risk story, like fallen friends, professors that are behind this research suggest that it's a risk story.

Ben Felix: I like the risk story a lot. Larry Swedroe, in one of his books, talked a lot about the risk story for value stocks and just things like higher operating leverage. So higher fixed expenses makes it harder for value companies to change their business model as the market's changing, whereas growth stocks like Apple and Facebook, they're tech companies, they're much more nimble, they can pivot, all that kind of stuff. So just based on that, there's additional risk baked into value stocks.

Anyway, over the last 10 years, that risk has not paid off in the US. Seven of the last 10 years have been negative for the value premium. So growth stocks have been outperforming value stocks in the US. A lot of that story is captured with the Fang stocks, crazy growth stocks with massively growing earnings, but also massively growing prices relative to their earnings. So not only are the earnings going up, the prices relative to the earnings, that multiple is also going up. Another interesting point is that this is so that we are in this 10 year period where value stocks have underperformed.

Cameron Passmore: By 3% or so I think per year.

Ben Felix: Over the period. But the really interesting thing is that we're in one of 13, 10 year periods. So there've only been 13, 10 year periods since 1928 until now where value has underperformed for 10 years and we're in one of those periods.

Cameron Passmore: And I know a client asked us this a couple of weeks ago, "Is this not a different era where it is a winner take all in technology?" So that was his thesis that you should be concentrating on these securities because they could take it all. Have you had that question?

Ben Felix: Yeah. We've talked about it too. Sure, that can happen. But that ignores the whole idea of capitalism, and competition, and risk. Also, it ignores risk. If it were really a risk free profit by capturing those largest companies, while the price would be bit up, even more than it's been bit up, and you wouldn't expect a positive return afterwards.

Cameron Passmore: But they have to keep making a lot of money for a long time to justify these multiples.

Ben Felix: And we've seen today, yesterday and today Facebook released some earnings that were maybe not as exciting as they have been, and Zuckerberg also gave some guidance that he expects profit margins to be lower going forward, because they've got to spend more on security and some of their advertising revenue sources are decreasing. And that was a big drop in one day for any stock, but Facebook dropped 20% and it's down again today. So that'll be interesting to see how that affects this whole growth story.

O'Shaughnessy Asset Management, they've been around for a long time and they're in their Q2 investor letter, they had some really interesting comments. They are the type of value investor that I was alluding to earlier. Well, they're a little bit more quantitative actually, but they're an active management value investing firm.

Ben Felix: So in their research that they wrote about in the Q2 investor letter, they talked about how since 2010 growth has outperformed value in every sector in the US, so it's not just tech, every single sector growth has outperformed value. The Russell 1000 value index and the Russell 1000 growth index are what they use for comparisons, and they showed that the earnings per share growth for value companies has been much lower than it has been for the growth companies. But I mentioned this at the beginning too, the growth companies have also seen their prices relative to their earnings increase.

So earnings are going up, prices relative to earnings are also going up. So that's why we've seen this big jump in the share prices for those types of companies. But like we were just talking about with Facebook, when you start seeing big PE growth and then expectations change, because that PE, it's the market's expectations, when those expectations change, it can get pretty ugly pretty quickly.

Cameron Passmore: And a lot of people have been right for a long time on this, and I think there might be overconfidence buys are baked into behavioral right now too, so I'd be concerned about that as well.

Ben Felix: And that's what we see with those high prices relative to earnings. The other thing that's really important to keep in mind is that a lot of this dialogue tends to focus on the US, and US companies, and the Fang stocks, and the S&P 500, and that does not tell anywhere near the whole story for people who are actually investing their savings.

So we're talking about the US value has underperformed for 10 years, that doesn't mean value's underperformed everywhere. If we look at Canada, value has more than outperformed growth over the last 10 years, it's outperformed. If we look at the MSEI Barra Canadian Value Index, compared to the Barra Growth Index, values outperformed in Canada by a little bit more than 5.5% per year for the last 10 years. That's pretty crazy and no one's really talking about that story.

Cameron Passmore: Massive premium.

Ben Felix: And that just tells the story of why we diversify, but not just geographically, we diversify across factors. And I think people that listen to this podcast will start to hear more and more about factors from us. We talk about it a lot, but-

Cameron Passmore: And the magic really is in rebalancing with those factors too. So we have fixed weightings in each of these factors. So as the valuations move around, things are rebalanced. You're effectively selling high and buying low all the time, which gives a higher expected return over all over time, and studies are showing that it gives lower volatility in prices.

Ben Felix: So we look at stuff like the value as a factor. We're talking about how value's outperformed in Canada, underperformed in the US for the last 10 years, small cap is also a size, is also a factor. So if you look at small companies in the US and in the EFE index, small has beaten large over the last 10 years. So if you're only investing in US value, you've underperformed, but if you're investing in US value, Canadian value, US small, international small, you're doing better than okay. So stuff like this, when you hear about something scary like, "Oh, value's underperforming in one geographic region," which is always important for investors to keep context with stuff like that.

Cameron Passmore: And don't fall in love with a factor or don't fall in love with a region.

Ben Felix: Or choose a factor.

Cameron Passmore: Have a set allocation and continue to rebalance.

Ben Felix: That's right.

Cameron Passmore: It's important to have a philosophy, and then as David Booth says, founder of Dimensional, have a philosophy and stick with it.

Ben Felix: It's the most important thing for any investor. We've talked about that too with dividend investors. It's like there's no research to show that dividend paying stocks will do better than the market, there's nothing to support that, but dividend investors tend to be happy, confident, whatever you want to call it.

Cameron Passmore: Fervent in their beliefs.

Ben Felix: And that's fine. If that's what it takes to make you stick with a portfolio, then sure, buy dividend stocks. It's not the most diversified strategy, but whatever, it keeps you invested. That's better than nothing. There was a good article in The Wall Street Journal, it was interesting, but it talked about how for the first six months of 2018, and this is US specific, the amount of money going into passive mutual funds and exchange traded funds has been going in at a rate 44% lower than over the same period in the previous year.

Cameron Passmore: I find that data so surprising, especially in the US where so much money is going towards Vanguard and their ETF and fund complex. I believe it when I'm skeptical.

Ben Felix: Well, Barry Ritholtz wrote a good opinion piece in Bloomberg about this exact data point, and he's basically saying that index funds in the United States where they have seen crazy growth have been going through an unsustainable period of growth, where they've been adding so much assets to passive and away from active, you can't keep going, it just wouldn't keep going at that rate. So his hypothesis is that we've reached, not peak indexing necessarily, but we've reached a point where the massive flows into passive might slow down to a more sustainable pace going forward. And Barry wrote that he doesn't think that this slowdown means the trend is going to reverse, it's more just going to level out. Barry had a pretty funny comment in that article too, he said that active funds wish they had the problem of slowing inflows because they've had massive outflows.

Cameron Passmore: Massive, massive outflows. The same thing's going on in Canada, but a much different rate, I suspect.

Ben Felix: Well, the data point that we pulled last week, I tweeted about it, but we looked at fund flows into RBCs mutual funds, which are-

Cameron Passmore: Largely active.

Ben Felix:... we could say pretty close to 100% active. It would be in the high 90, probably 99 plus percent of their mutual funds are active. And so far, in 2018, we've seen more inflows into RBCs mutual funds than we've seen into passive ETFs from Vanguard, Bemo, iShares and Horizons combined. So it's crazy, totally different landscape in Canada.

Cameron Passmore: And much higher margin. The fees charged in those funds are much higher than all those other ones mentioned combined, for sure.

Ben Felix: Fees in Canada in general are way, way higher than the US. I think the average mutual fund fee in the States is about 70 basis points, or 90 basis points or something, and in Canada, it's still 2.02% for allocation funds, different landscape.

Cameron Passmore: Different landscape.

Ben Felix: Different landscape. And the banks probably have a lot to do with that, I would guess.

Cameron Passmore: So there was a neat piece in The Economist last week, wondering if markets had lost any efficiency with the growth of index funds. And I think their hypothesis basically was that they have not gotten less efficient. And the main reason being that more and more of the bad managers are getting out of the business, therefore you're having more and more smart managers competing and setting prices in the marketplace. You agree with that thesis?

Ben Felix: Exactly. We haven't seen any data to support active management as winning. It's not starting to outperform constantly. We're definitely not seeing that, so that doesn't support the idea that markets are getting less efficient.

Cameron Passmore: And you don't need a lot of people that have market efficiency.

Ben Felix: No, you don't.

Cameron Passmore: And price efficiency, and price discovery, and the research being done, and there's still so many people doing so much research with so much technology that hard to see it becoming inefficient anytime soon.

Ben Felix: Well, what you said is exactly right, that as indexing grows and investors realize that, "Hey, indexing is an option" and "Hey, maybe active management isn't what I need," the bad active managers are going to get weighted out.

Cameron Passmore: And don't you find when a new person comes through the door and you explain our investment philosophy, they get it. It makes sense when you have so many smart people with CFA designations and great technology competing on prices. Does it not make sense when there's what? 70 million 100 million share trades per day, that there's a whole lot of discovery going on in those prices? People get it, it's very intuitive.

Ben Felix: Well, the people who come to talk to us, get it, but we know from the data that the majority of people in Canada anyway, don't get it still.

Cameron Passmore: But I think that's probably because they don't know about it. I think so many people have no idea what indexing is about.

Ben Felix: It could be.

Cameron Passmore: They don't know the data that is behind it.

Ben Felix: But it takes a lot. And actually, we'll talk about this, I know you want to talk about Richard Taylor, but it takes work to get it. It takes work to understand the data, and most people won't do that. And if you go and look online, there's enough stuff from active managers that say that indexing is risky or indexing is bad for some reason. There's enough stuff like that, that if you want to convince yourself that active management is good, you can do it.

Cameron Passmore: Well, we decided a long time ago, not to try to convince people of this, they'll have to get there on their own.

Ben Felix: Absolutely.

Cameron Passmore: But if people are ambivalent when they come in, most people get it and embrace it.

Ben Felix: That's true. Well, we're talking about active managers and only the most skilled active managers being left. I saw an example about tennis players, but you could use someone like LeBron James to make the same case. If you took a copy of LeBron James and had him play one-on-one on the basketball court against himself, the games aren't going to be won based on skill, or talent, or whatever, because it's the same set of skills, it's the same person in this hypothetical example. Those one-on-one games, they're going to be won based on luck. If he makes 80% of his shots and it happens in that game that one of the LeBron's misses more shots than he would on average, he's going to lose. But that's luck, that's not skill. And it's the same thing that's happening when we have fewer and fewer active managers who are the most skilled and have the best information. When it's them competing against each other, it's not any easier to win, it's harder to win because there aren't any bad active managers left for them to exploit.

Cameron Passmore: Plus those bad active managers, to think about it, they have to get the price wrong now to let you buy it cheaper than they have to be willing to buy it back from your later hires. They have become smarter over time, is that how it works? So they're dumb now, they sell it to you cheap, but then all of a sudden they're smart to buy it back from you higher, that means it'd to be dumb on both sides, dumb low, dumb high. It just doesn't make sense-

Ben Felix: It doesn't make sense.

Cameron Passmore:... When you think about the actual transactions that are going on behind the scenes.

Ben Felix: And if we do end up with a relatively small handful of really good active managers. Now, if they're competing against each other, whether they're skilled or not, it's going to be hard to actually win consistently. But let's say we do have a manager who can win consistently. They really do have an edge over the other managers, just the economics of that, well, a couple of things might happen. They could increase their fees in terms of how much they're charging their clients, because they're producing better returns, therefore they can charge more. But the other thing that can happen is that their assets will grow. And Larry Swedroe has written, has the line that successful active managers sew the seeds of their own destruction, or something along those lines. Because as soon as you have great performance, your fund's going to grow, and then you can't keep having great performance. It's the same kind of thing we've seen with Warren Buffet. He says it himself, it's so big now that it's hard to... you're the market, how do you beat it?

[Pharma 00:18:36] talked about this in the past too. He's been asked at what point is there a tipping point, or when does indexing get too big? And he has the exact same answer that we're talking about. Pharma says that even if indexing is a majority, as long as the remaining active managers are skilled and have good information, markets will still be efficient and potentially even more efficient because the bad active managers are gone.

Cameron Passmore: Next topic. So I listened to my one of my favorite podcasts, Freakonomics, a couple of weeks ago, they had on Dr. Richard Thaler, who is a behavioral economist from Chicago, University of Chicago. So he just won the Nobel prize last fall in economics. And so, his research has been around the biases that we all have and how we make economic decisions. So probably most famous for his whole idea around nudge, where you can have policy changes that will cause people to behave in a different way. So right now there's over 200 nudges around the world that have been implemented in public policy. And one of the ones when he was asked what's the biggest one that you can think of that's had the greatest impact, and he talked about the 401k plan in the US, where many 401k, which is like a group RSP at work.

Instead of having you make the decision, if you want to opt in or not, the default is feud opt in. So when people were not automatically opted into the plan, the enrollment was very low. When the reverse set and had automatic opt-in enrollment went up dramatically. Same as when you get upfront, decide if your salary goes up, do you want your contributions to increase? When you had that as a tick box people's contribution rates went up dramatically. So it's had a huge impact. That's just an example of what he has done.

So he talks about different biases that we all have and errors that we persistently make. So the host, Stephen Dubner, asked him, we all know we've heard about these biases and errors that we all make over time, he says, "Why do we, as human beings keep on making these mistakes?" And I thought he'd give a great answer, which applies to our world in working with clients. He said, "The answer is not that people are dumb, the answer is that the world is hard and we have many competing forces as we try to make decisions." So the example he gave there was exactly our world.

So many people will say, "I can do this on my own, I can manage my own portfolio," but we all have these biases built in. And the reality is retirement planning is hard, thinking about how much money you might want per month at what point in life, how much money do I have to save, the math behind that is not easy. Especially if you want to have a robust plan, there's statistical work that has to get done. You take all of that math and planning, which many people don't like to do, along with these biases we all have and how we react to how the market behaves, competing as well with the constant bombardment we have about buying stuff, marketing is after us all the time to be upgrading our house, or a car, or whatever. So delaying gratification is hard, you just have to delay gratification in order to save. So putting those three factors all together is really, really hard. So I thought that was a great proposition for why people choose to work with firms like us.

Ben Felix: We see that in Canada too, not necessarily nudges, but maybe the lack of nudges. You see it with stuff like people not saving enough for retirement, because in Canada we don't usually have automatic opt-in. If you don't have a pension, whether it's defined contribution or defined benefit, most people don't have a pension, and therefore it's up to you to make your RSP contributions. And you're right, what you're saying is that people don't know how much to contribute, they don't know when to start contributing, and it's hard to figure those things out. So a lot of people won't do it.

Cameron Passmore: But it's easy to see that house you want to buy, it's easy to imagine that beautiful kitchen you're going to have.

Ben Felix: Yeah, definitely. And also, the home ownership thing that you just said, I think that also speaks to Canadians wanting to buy real estate because it probably does end up being one of their best assets if they're not disciplined and don't understand the issues. Because if you're not saving, but you buy a house, well, hey, the house is forcing you to save. So that's not a bad thing. So I think that the idea of the nudges is really, really smart, and-

Cameron Passmore: So we ended up becoming the nudge effectively, like we're working right now, someone's asking us, "Can I afford this cottage? What is the impact on my retirement in 30 years, if you can believe it, if I buy a cottage today?" So we're running the math [inaudible 00:23:11] on that exact scenario.

Ben Felix: Do you want to talk a little bit about the Canadian Medical Association selling MD Management?

Cameron Passmore: Yeah. So sold this to Scotiabank.

Ben Felix: For 2.6 billion.

Cameron Passmore: So I think it caught a lot of physicians off guard, not so much that they didn't know that MD Management was a profit center, but I think they're questioning now. And this is what the point of the article in the Canian Medical Association Journal was that many doctors are wondering if they're going to continue to work in doctor's best interest. They knew if it was MD Management, of course, they were working in our best interest.

Ben Felix: They thought that.

Cameron Passmore: They felt that way. So they're just openly wondering, will that change a lot? And I know a few doctors that we work with, they're saying they've heard that concern as well through their peers.

Ben Felix: That's a tough one. I know the perception, like you're saying, from physicians has been that while MD is looking out for doctors and it's for doctors by doctors and all that kind of stuff, MD, the fact is that was always a profit center, like you said.

Cameron Passmore: The Scotiabank is definitely going to rationalize things over time and cross sell, which may be great for the doctors. You get private deals on mortgages or credit cards or something, but there will be certainly a sales process that comes through this organization to get the revenue up without a doubt.

Ben Felix: It'll be interesting to see the follow to that, very interesting.

Cameron Passmore: All I know, the doctors we work with appreciate having consistent service from the people they know, so it's very different than the bank model.

Ben Felix: Definitely different. There's been a lot of talk about the yield curve in the US which has been flattening out.

Cameron Passmore: What does that mean?

Ben Felix: That means that short term interest rates, which are mostly set by the government, have been increasing, whereas long-term rates, which are mostly set by market forces, have been remaining relatively the same. So as the short-term rate approaches the long-term rate, that's called a flattening of the yield curve. If the short-term rate exceeds the long-term rate, that is called an inversion of the yield curve. If the yield curve inverts, it tends to be a signal of an impending recession, which tends to lead to low stock returns.

So a lot of talk about that, people are nervous. The last seven times the yield curve has inverted it has led to a market correction or an economic recession, which maybe led to a market correction. Keeping that in mind, this does not mean that it's obvious too that we need to change anything in portfolios. You don't need to go to cash. Even if the yield curve does invert in the past, when that's happened, there's been a lag. And the lag between yield curve inversion and a recession varies in time. So if you try and get out of the market before the downturn, you may very well miss the growth between when the yield curve inverts and when the recession actually begin. So it's not a foolproof market timing tool.

Now, all that's interesting, there was a paper last year in December that was talking about the different factors. So we're talking about factors, but it was talking about the different factors in various market cycles. And won't go into too much detail of the paper, but the general idea is that factors perform differently at different stages of the market cycle. So if you're only invested in the market, you're only invested in a market cap weighted index of stocks-

Cameron Passmore: Like the S&P 500.

Ben Felix: Sure, like the S&P 500, that tends to have negative performance in a recession, but you start adding in other factors. So value, profitability, investment, those are all factors that can be invested in, and that are captured in portfolios with the products that we use from Dimensional.

Cameron Passmore: And that's really the key takeaway for our clients, is to know that you have deliberate allocation to these different factors with regular rebalancing.

Ben Felix: So as long as your factor diversified, that means that it's just more of an argument not to worry about the yield curve. Ben Carlson also shared a paper that one of his readers sent to him talking about the predictive power of the yield curve around the world. And the conclusion of the paper was that the yield curve's predictive capacity in the US is an outlier compared to other countries. So while the yield curve has been pretty good at predicting recessions in the US, that has not held true in other countries. The paper also found that the predictive power of the yield curve seems to be declining. They also found that when Japan had their zero interest rate policy, that predictive power of the yield curve went away, and now we're in a somewhat similar situation in the US with very, very low interest rates.

So based on that relationship with what happened in Japan, maybe this time, classic last words, maybe this time it's different. But even if it's not, it doesn't mean that the yield curve is a reason to go to cash. And the yield curve is not inverted yet. If it does invert, does not mean that it's a reason to go to cash. And it's the same advice we give for anything, stay invested, don't worry about it.

Cameron Passmore: Plus everybody knows this information, so you can make the argument that it will be priced in.

Ben Felix: You most likely have more to lose by trying to time the market than by just staying invested. Everybody was talking about it on Twitter, but we can chat a bit about that.

Cameron Passmore: Twitter people that we follow anyways.

Ben Felix: Sure, our Twitter world.

Cameron Passmore: Just talking about the top weightedness of the S&P 500. So Michael Batnick, who has a podcast we follow, Animal Spirits, and he put out a chart that caused a bit of controversy to those who really cared about those kinds of details. Just showing how much of the S&P 500, which are 500 larger US stocks was weighted in the top five stock. So you have Apple, Amazon, Alphabet, which is Google, Microsoft and Facebook presented the same total value as the bottom 292 companies in the S&P 500.

Ben Felix: It was 282 higher [crosstalk].

Cameron Passmore: So just out of 300 companies, huge weighting. It looked in this chart like those five companies were 50% of the index, which is not true. I think they're closer to 16% of the total index, but still you have five companies out of 500 representing such a high end weight. And the S&P 500 is a great way to invest, very cheap. You can buy an S&P 500 ETF for just a few basis points, and it has had great performance, but we'd like to be more diversified. So you can take a look at the DFA US portfolio that we use for clients, the top five companies in that portfolio makeup 9% of the fund. So it's a very different weighting factor that goes on.

Ben Felix: I think the story with that Batnick tweet, it really ended up being that chart that he shared was just wacky. And I know they were defending themselves saying that they did disclose what the chart was supposed to represent, but-

Cameron Passmore: They did, but you had to read it carefully.

Ben Felix: It wasn't a great chart. I think it made people scared like, "Wow, that's pretty crazy." It looked like the S&P 500, half of it was made up of these five stocks, which is not even close to the case. And actually the concentration in the top five stocks over time in the S&P 500 has been pretty flat, so we're not even in a different territory right now. Anyway, that was just interesting because the internet got so up in arms about the tweet, and it didn't actually end up really mattering too much, but it was interesting to dig into the market cap weighting of the S&P versus the DFA, US equity, just because as we know, DFA is very deliberate about not having those market cap weights. They're going to decrease the weights of the largest companies and we see that in that comparison. So 16% to the top five companies in the S&P 500, versus 9% in the DFA US core equity fund. So that was fun to dig into.

Before we wrap up, Rob Kerrick did have a piece on how wealth management firms are really failing millennials. Only 2% of wealth management clients tend to be of the millennial generation, and the average age of wealth management firm clients is 64 years. And we thought that was really interesting, jumped out at us because our average client age here is 47 years, so a pretty substantial difference.

Cameron Passmore: And the average advisor, I think in Canada's in the mid 50s, I believe. So this may be changing, perhaps a lot of the millennials are going towards robo-advisors.

Ben Felix: I did an interview earlier today about robo-advisors.

Cameron Passmore: Oh, did you?

Ben Felix: That article should come out later this week, but the robo-advisors replace us. I think that's just no, they don't. It's a completely different service offering. And what it comes down to, is the relationship and behavioral coaching, and just having someone that you know and trust.

Cameron Passmore: Well, it goes back to the nudge. Who's going to take care of all that stuff? There's no way you can automate all that.

Ben Felix: You can't automate that, I don't think.

Cameron Passmore: Maybe you can.

Ben Felix: I don't know.

Cameron Passmore: But it takes a lot of input from the individual.

Ben Felix: We see enough people coming from, they maybe tried while simple and they decide, "Hey, this isn't what I want, I actually want advice." So we've seen enough people transfer over just based on that, that I'm skeptical of the robo-advisor.

Cameron Passmore: Well, the point is you can automate this side of the business, but you can't automate someone reaching out to us, you can't automate someone making the contributions and sitting down and actually planning out their future.

Ben Felix: And thinking about it, you can't automate the thinking, and a lot of people don't want to do that. And the report of those did that interview, the last statistic I had was that Wealthsimple had 65,000 customers with 10 people licensed to give advice. And the reporter that I spoke with this morning, she'd actually talked to Wealthsimple earlier in the day, and they actually have 80,000 clients now with nine people licensed to give investment advice.

Cameron Passmore: Wow. 12, 13 license with 600 odd families. So whole different ratio.

Ben Felix: Whole different ratio. And the advice in the relationship, that's going to be tough to make that go away or to lose its value.

Cameron Passmore: That's a wrap.

Ben Felix: Anything else?

Cameron Passmore: No, that's good.

Ben Felix: All right.

Cameron Passmore: Talk to you this week.