Is the future free?

Stewart Brand, writer, entrepreneur and founder of The Long Now Foundation, famously declared that “information wants to be free.” If it is the case, it begs a question: are we really better off in a digital age in which we are overwhelmed by news and fake news, and where social media echo chambers are prolific? The answer is two-handed. On the one hand, discerning users are better off with access to wider networks, deeper data pools and richer information. And, on the other hand, those who don’t question get fed the answers they want, search until they find the answers that they want and are misled. Free doesn’t mean cheap.

Zero is a powerful number. Behavioural economist Dan Ariely offered participants in a study the choice of two chocolates: Hershey’s Kisses at one cent and Lindt truffles at 15 cents. Three-quarters of participants preferred the Lindt truffles at 15 cents. When he ran the experiment a second time, he reduced the price of both chocolates by one cent. The Hershey’s Kisses were now free, and now 69% of participants preferred the Hershey’s Kisses over the Lindt chocolate. This begs the question: when things are free, do we exercise our best judgement? Do we follow our preferences?

You get what you pay for

Chris Anderson, author of Free: The Future of a Radical Price, notes that there is a stark difference between cheap and free: “Give a product away, and it can go viral. Charge a single cent for it and you’re in an entirely different business… Zero is one market and any other price is another.”

Author Malcolm Gladwell notes that free moves us from a mind-set of scarcity to one of “abundance”. However, free can also introduce inefficiency and inferior quality, the very attributes that market prices work to moderate. YouTube is a good example: you can post and watch an unlimited number of movies for free, and there are no barriers to entry. But there is also no quality control. To make money, YouTube sells advertisements. Yet advertisers don’t necessarily want to be associated with user-generated “free” videos. And so, to sell advertising, YouTube has resorted to purchasing the rights to broadcast professionally produced material. This raises the question then: how sustainable is free? And, in the long run, how beneficial is free?

“Free” financial services

This fight for free is playing out across economies and across the world, disrupting industries like music and journalism, and putting pressure on long-established businesses who banked on the kind of knowledge that is now freely available. However, as is clear from the YouTube example, free is simply another price. Inevitably, you get what you pay for.

Recently, we have seen the introduction of investment products that have substantially reduced management fees compared to traditional products. This is a natural progression in a competitive industry which has come under pressure by increasingly educated and informed investors who are interrogating high fees that erode hard-earned returns. At the same time, increasing sophistication in investment products is enabling asset managers to offer excellent investment solutions at highly competitive rates; which is what economists refer to as a “free lunch” or a “win-win” result.

Cannon Asset Managers’ tax-free savings account (TFSA) bundles, which are built using multi-asset factor-based funds, are an excellent example of such a ”win-win” outcome for investors. Our portfolio managers optimise and actively manage each bundle’s blend of assets and asset classes, reducing the concentration risks associated with traditional passive index funds, and introducing a unique solution to the market.

Each investment bundle holds a tailored blend of indexes, using Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs), that own or mimic the performance of companies in different sectors and regions, as well as holdings in other asset classes such as cash, bonds, property and commodities, in various weightings, to meet the objectives of each bundle. In this way, Cannon Asset Managers’ TFSA bundles are designed to meet the investment needs, time horizons and risk appetites of investors with different needs. In addition, the TFSA bundes are:

  • user-friendly, and will soon be available via EasyEquities, with no minimums required; and
  • highly cost-effective, with fees that are lower than 1% per annum across all four of Cannon Asset Managers’ bundles.

The evolution taking place in the financial services sector is exciting. It is promoting education amongst the public and eliminating barriers associated with investing (including reducing fees, lowering minimum investment amounts and promoting ease of access to investments). In turn, this is giving birth to new and exciting investment products that bring “win-win” results to the discerning investor.