There is a market for active management services. If more active management is not adding value to customers portfolios on a marginal basis, customers will pur

There is a market for active management services. If more active management is not adding value to customers portfolios on a marginal basis, customers will purchase less active management services. This happened over the past twenty years. He asserts "...active management has positive externalities, and if no one will pay for it, those benefits will disappear." There's no question that it produces positive externalities, for example setting bond prices, but this doesn't have to be static -- if public equity prices become less accurate, the bond guys will just have to start doing the research that the equity guys used to. Then equities traders will start looking at bond prices to guide equity purchases. Looking at a macro/whole economy level, the only capital allocation questions are how to price an IPO or secondary offering, what to do with distributions, and corporate governance. Everything else is just moving money from one pocket to another, and once a company has gotten to S&P 500 size, there aren't very many secondary offerings. It seems highly unreasonable to me (and all of the other index investors) that this function is worth 1% of the market cap of all public companies, every single year, particularly when E/P ratios are 4%. That means your fund manager is taking 25% of the profits of all of the companies you own just for picking which ones to buy. In the places where there are real decisions to be made, i.e. IPOs and governance, there are specialist companies that exist to make these decisions and try to profit from them -- activist investors and funds, private equity, and investment bank underwriters.