How book smarts led to post-crash opportunities for adviser

The year 2008 is synonymous with the global financial crash, but for adviser Joshua Itzoe it marked another milestone: the publication of his first book on retirement investing.

The credit crisis sent markets spiralling, swallowed investment bank Lehman Brothers and led to millions of Americans losing their jobs. For Mr Itzoe, managing director of the institutional client group at Greenspring Advisors — who completed the book that September, before the crisis peaked — it was also an opportunity.

The combination of falling markets and the publication of Fixing the 401(k): What Fiduciaries Must Know (and Do) to Help Employees Retire Successfully helped him to attract clients, including companies seeking advice on offering defined contribution pension plans. “No one is going to confuse me with Ernest Hemingway,” he says. “But after the book came out we got several really great clients.”

Mr Itzoe says companies were attracted to the book’s simple concepts, such as a focus on negotiating the fees investment companies charge and encouraging new employees to contribute money early in their careers.

“Companies woke up to see they had more responsibility for these plans than they thought they did. It took a number of years . . . for companies to fully embrace what it means to offer and sponsor a plan for their employees, and all the responsibilities that are part of that and how to do it well.”

Another concept Mr Itzoe championed in his book was passively managed investing. This is where a portfolio tracks a market index, rather than trying to predict winners. In the 10 years to 2016, investors pulled $1.6tn from active equity strategies managed by US asset managers and injected $1.3tn into passive options, according to Sanford Bernstein figures.

Around 70 per cent of the $1.5bn Mr Itzoe oversees in DC retirement accounts is invested in passive strategies. That is more than double the average for financial advisers included in this year’s FT 401 list, in which Mr Itzoe features. “We feel the data and evidence very much support the fact that active management is a much more speculative way to invest,” he says.

One argument that has resonated with Mr Itzoe is that those active managers that can outperform seldom do consistently. “People think you’re saying all active managers will underperform — that’s not the truth at all. The reality is there is no reliable way to predict ahead of time who will outperform in the future,” he says.

Investing in passive strategies generally reduces the amount of fees paid by investors. This cuts down what Mr Itzoe calls “leakage” from a plan’s assets — which would in turn decrease the overall pot of assets that can be invested, a drag on long-term returns.

Mr Itzoe and his colleagues at Greenspring factor behavioural finance and research into how DC pension plans best operate.

This has led Greenspring to use a shorter list of investment strategies that employees can select, which Mr Itzoe says encourages workers to engage in decision-making, rather than being overwhelmed by choice.

The advisory company has also focused on encouraging employees to set high levels for the amount of pay that is automatically directed into their pension plan. “Selecting investments is probably [only] 10 to 15 per cent of what we do for clients,” he says.