MSFT is making its own tablet …why?

the Surface tablet

Two days ago, in Los Angeles of all places, MSFT unveiled its new Surface tablet.  You can see pictures and get specifications at the company’s still-under-construction Surface website.

The tablet, slightly more oblong than the iPad but otherwise quite similar, will be available through MSFT’s bricks-and -mortar stores, as well as online.  There will be two versions, one driven by an ARM chip and a heavier-duty one driven by an INTC processor.

Although details are scanty, debut appears to be set for at least the lighter model late this year.

plusses vs. the iPad

There are some.  For instance,

–the iPad comes with a watered-down version of the Safari browser.  Ugh.  Surface will presumably let you use Chrome.

–there’s no easy way to type on an iPad.  I’m using the latest Logitech keyboard/cover on mine.  But even though reviewers say it’s the best yet, it’s still pretty clunky.  Surface has a lightweight keyboard/cover.

Of course, you can use the dictation feature on the iPad.  But try that in a library or on the train.

–you can’t create an Office document on an iPad, either.  Surface will come with special editions of Office, although whether the software will be available on Day 1 isn’t clear.

why have a Windows tablet?

Tablets are a great form factor–something MSFT knew when it pioneered the tablet almost a decade ago.  The company’s versions were just too big and clunky to be successful.

Thanks to AAPL, corporations now want to use tablets.  So do schools and colleges.  But the fact you can’t create usable documents or spreadsheets is a big drawback.  The longer this situation exists, the more pressure there is for tablet fans to create a non-MSFT solution to their productivity needs.

So the lack of a viable MSFT tablet is a continuing threat to one of MSFT’s core businesses.

why make one?

The first thing that comes to mind is that MSFT doesn’t think much of the tablet offerings by HPQ, DELL or their Asian competitors. That’s probably right.  You don’t see people camping out in front of Best Buy to be the first to own their latest models.

However, look at INTC.  To get the Ultrabook going, INTC created reference designs for the new product it wanted.  It gave the Ultrabook blueprints to manufacturers for free and promised them a lot of advertising support for any products that met its specifications.  Why didn’t MSFT follow suit?

Also, unlike the case with the X-box, manufacturing a tablet puts MSFT in direct competition with its main customers, the PC makers.  That can’t make the latter happy.

And, although MSFT has doubtless learned some tricks over the years, the company doesn’t have a stellar reputation as a device maker.  Think: the initial X-box or the Zune.

So why, then?

I think it’s to control the pricing.

Because of its high production volume, AAPL has a significant cost advantage over any maker of a competing tablet.  In addition, MSFT will likely have to price its offering at a discount to AAPL to induce buyers to give up the “cool” factor of the iPad and the convenience of the App Store.  There’s no room for a competitor to make much (read: any) money on a tablet, if it’s got to be better than the iPad and be priced lower.

In fact, my guess is that MSFT would count itself extremely fortunate to break even on the Surface in the first couple of years.  I think the company would sign on the dotted line in an instant if someone could guarantee MSFT would sell 10 million Surfaces in the first year, provided it priced the tablet at a $100/unit loss.

MSFT has done this before.  My view of Surface isn’t that far off from MSFT’s experience with the first-generation X-box.  Remember, too, that MSFT generates $1 billion in cash flow in less than two weeks.  Chump change isn’t an expression often linked to $1 billion, but it conveys the idea.

save me a Surface (the INTC one)

I’m not a particular MSFT fan.  But a successful tablet removes a perceived threat to MSFT’s core Office business, it makes the company more valuable.  In that sense, Surface is a potential big plus.  Personally, I’d prefer to buy a Surface when they come out.

Verizon (VZ) outperforming Apple (AAPL)? …what’s going on?


Yes, it’s true.  Over the past three months, VZ is up 10.7% while AAPL is flat and the S&P 500 is down 4.2%.  We should toss in another 50bp to VZ’s outperformance because it has a high dividend.

Maybe there’s nothing to this.  After all, the stock market is, even at its best, a two-steps-forward, one-step-back affair.  So VZ could be having one of its forward steps while AAPL is temporarily in reverse.  The period in question is very short.  The overall market is also down over the past quarter, the kind of environment that favors more defensive stocks.  And, of course, VZ and AAPL were neck and neck through the first half of last year before AAPL rocketed ahead and left VZ in the dust.

Still, there may be something a little more substantial going on.  I don;t mean to argue that AAPL will be an underperformer.  The surprise may be that VZ continues to be an outperformer.  I may be biased here, too.  I haven’t finished my research yet, but I have recently bought some VZ.

the argument for VZ

the US cellphone market is maturing

According to Nielson, 69% of current cellphone purchasers in the US are buying smartphones.  If we break that out by age, close to 80% of new phone purchases by Americans under 55 years of age are smartphones.  About half of those 55 or older are choosing smartphones, too.

Given that there will be some–mostly 65+–users who will never adopt new technology, can it get much better than this?  I don’t think so.

strategy shift in maturing markets

In a recurring subscription business, the winning tactic in any new market is usually to stake out as much territory for yourself as possible, without much regard for profitability.   You don’t care what anyone else is doing.  You just want to get as many clients in the door as you can.

As the market matures, however, two changes occur:

–growth comes from taking customers away from competitors, not from finding people who have never used the service before.  This is typically harder work and more expensive, so firms with scale end to have an advantage.

–profitability becomes more important.  Firms try to raise prices and to cut operating costs.

I think this is where we are in the US cellphone market.

sources of profit growth for VZ

1.  lowering phone subsidies.  To use round numbers, let’s say VZ pays AAPL $600 for an iPhone 4s.  It resells the phone, linked to a two-year contract, to a customer for $200.  VZ loses $400 on the transaction.

If the company can persuade that customer to choose an Android phone that it pays, say, $450 for, it loses $250 instead.  So it’s $150 better off.  That’s all incremental profit.

Better (for VZ) still, if the customer chooses a Nokia Lumia phone, the loss may be only  $200.

In Europe, phone companies are experimenting with using INTC reference designs to make house-branded phones.  Why bother?  INTC is only interested in selling chips, so it is ceding the entire wholesale markup to the carrier.  So it may cost the carrier $350 for a phone it can resell for $200–meaning a loss of $150.

Make this sort of marketing shift for enough customers and the savings become significant, even for a company of VZ’s large isze.

2.  raising prices.  In a sign that VZ thinks its market is maturing, it is fundamentally reworking its pricing.  Starting late this month, customers will get voice for free but begin to pay for data.  No more all-the-data-you-can-use plans, either.  Interestingly, VZ is going to eliminate a $20 per month charge for the ability to make your phone a mobile “hot spot” for internet access.  So you can tether your laptop or tablet to your phone for free, just by asking VZ politely.  Why?  Videos look a lot better on a tablet.  And they’re very data intensive.

all good things end, someday

At some point, possible profit-enhancing measures will run their course.  But that’s probably several years down the road.  In the meantime, VZ’s profit performance vs.Wall Street expectations may be surprisingly good.

In a perfect world (for the holder of VZ shares), the company would be able to spin off or otherwise shed its fixed line and FIOS money pits.  For stockholders, that would be like hitting the lottery.  It’s very highly unlikely to happen, in my opinion.  But, on the other hand, there’s nothing in the stock price for the possibility.

has Facebook (FB) bottomed?

I think it has–at least in relative performance terms.  But I also think that FB’s conduct during its IPO has created an enduring credibility problem for it.


The biggest factor depressing FB stock during its debut, in my view, was the joint, last minute, decision by the FB chief financial officer and the lead underwriter to expand the dollar amount of an already large offering by 40%.  That left no buying demand for the aftermarket.  If you think the underwriters didn’t know precisely what they were doing, there’s a bridge connecting Manhattan and Brooklyn you might be interested in buying.

However, it has only recently come out that the NASDAQ trading problems on the first day were much larger than I had originally appreciated.  CNBC has reported that investment bank UBS alone may have racked up FB-related losses of $350 million.  How so?

If you remember, NASDAQ’s computer systems weren’t able to handle FB orders at all for the first several hours of trading.  Some retail investors didn’t know for the better part of a week how much FB stock they had bought or sold.  It turns out, though, that institutional problems were a lot bigger.

CNBC says an unnamed UBS trader entered a buy order for 1,000,000 shares of FB.  He didn’t get a confirmation from NASDAQ.  So he entered the order again   …and again   …and again   …and again.  Then, apparently, confirmations for all the orders came at once.  It’s unclear whether the confirms came on Friday, or during the following week.

CNBC also says UBS only liquidated some of the stock at below $30 a share.  Do the math.  If we say the UBS trader bought the stock at an average of $40 and sold at $30, that’s a $10 loss on each share.  If so, he pressed the “buy” button 35x!!!, without thinking about the possible consequences  (Welcome to the world of trading.).  

Presumably the UBS trader wasn’t the only one doing this.

Notice, too, that the FB price didn’t dip below $30 a share until almost two weeks after the IPO.  So it took UBS at least that long to trade out of its unwanted position.  Throughout all that time, FB was under unnatural selling pressure.

I think that’s over.

prospectus disclosure

The IPO materials suggest that FB wants to portray itself as carrying out an ethically good social mission.  Mark Zuckerberg says as much when he leads off the IPO video.  Thereby, I presume, it hopes to gain investor trust and support–and a higher PE.

FB has just released correspondence between it and the SEC about the prospectus.  Media analysis of the documents indicates that FB withheld from the first version of the prospectus two items of information that I regard as the two most important facts about company operations.  They are:

–the regional breakout of subscriber growth and profitability, and

–the effect on profits of the switch to mobile use of FB.

(Note:  I haven’t looked at the correspondence, which is contained in SEC filings by FB.  But every major news source I read has reported the same story.)

You might say that in the rough and tumble of economic life, the most prudent course for a company is to disclose as little as possible to potential competitors.  You might also say that the initial draft of the prospectus is intended solely to stake out a negotiating position with the SEC.  In one sense, that’s right.  But if you do this, I don’t think you can pitch yourself as being socially responsible or try to cultivate potential investors as partners in the noble cause you’ve embarked on.

Think of it this way:

A married couple.  One partner likes to gamble but always loses.  One day, that partner comes home late from work, after losing $500 playing poker.  The other partner says, “I see that look on your face.  You’ve been gambling again.  How much did you lose this time.”  The reply:  “$5.”

Is this last statement true?  I don’t think so.

Yes, it is factually correct.

But it’s also incomplete.

If the two people were commercial adversaries, maybe the statement would be okay.  But in a relationship where the partners have assumed an obligation to be fully and completely truthful with the other, the reply is a lie.

No, the prospectus isn’t a marriage proposal.  On the other hand, I don’t think that FB can invite us to become partners on a socially uplifting journey while stamping caveat emptor on all its disclosure to us.  We can’t be both trusted allies and sheep ready to be fleeced.

The “like me, trust me” route does generate a higher PE multiple, in my experience.  But to the degree that investors perceive a double standard, I think the stock’s PE multiple will be lower than if it clearly chose one approach or the other.

AMZN and the new (generic) Top Level Domain names on the internet


The Internet Corporation of Assigned Names and Numbers (ICANN) unveiled the list of approved applicants for a new set of generic Top Level Domain (gTLD) names it proposes to issue.  The addition is intended to expand the number of such TLDs significantly from the current twenty or so (.com, .net, .gov etc.).


The move has two goals:

–to introduce TLDs that use non-Latin based characters.  This means languages like Arabic, Chinese, Japanese or Russian will have domain names in local language characters for the first time.  This will make it easier for people whose first language is not Latin-based to use the internet.  After all, that’s where most of the future growth will be coming from.

Users may not be conversant withLatin-based characters, for example.  And they may have to take elaborate steps with their access devices just to be able to type them.

–to expand the available universe to TLD names beyond those that ICANN finds useful, and to align naming with the specific needs of internet users.

squatters need not apply

…penniless ones, at least.  One provision of the application process is that any entity bidding for the right to control and administer a specific name (that is, to say who can use the TLD and who can’t) already have the infrastructure in place to do so.

who’s bidding?

Here’s the list.

what catches my eye

–Despite the ICANN precautions, most applicants appear to be companies formed specifically to acquire and hold TLD names., which is funded to the tune of $100 million by venture capital and private equity, is an example.

–there’s little match between the 1900+ TLDs requested and the most expensive search terms–like attorney, insurance or rehab–that internet advertisers buy.

–traditional advertising “grabbers” like “Free” or “Buy” aren’t in great demand, either.

–the most highly contested names are “Apps,” with 13 applicants, and names like “Home,” “Like” and “LLC.”

–the largest companies appear content to stake out their company name and the names of their chief brands, so that no one else can control them.  Other than that, they’ll wait on the sidelines to see the process evolve.

AMZN is the one exception

AMZN has applied for over 30 TLDs in Latin script, as well as filing 10 of the 116 requests for non-Latin TLDs.

Some of the names are what you’d expect, like “.Amazon,” “.author,”  “.book.”

That AMZN also wants “.AWS,” “.cloud,” “.fire,” or “.app” probably isn’t too surprising, either.

But it is also asking for “.bot,” “.box,” “.coupon,” “.drive,” “.deal,” “.free,” “.got,” and “.now”.

I think the AMZN move makes a lot of sense, for it anyway.  The company has more spare server capacity than just about anybody, so the cost for it to corral these names isn’t high.  And this many turn out to be just like the earliest days of the internet, when ordinary (albeit geeky) people bought basic domain names like “” and “” just to use for themselves–and later were able to sell them to corporations for tons of money.

The next step in the ICANN process?  …a seven-month call for comments.  The “list” link above will take you there if you want to chime in.

the Federal Reserve on US family finances, 2007-2010

US family finances, 2007-2010

Early this week the Fed released a report on its triennial survey of consumer finances.  The 80-page, densely written document covers the period from 2007-2010–the heart of the Great Recession.  The main conclusions, as I see them:


After remaining flattish over the earlier part of the decade, median (that is, list incomes in size order and pick the middle one) family income in the US fell by 7.7% to $45,800 during 20070-2010.

For the 40% of families headed by a person aged 55 or older, however, median income actually rose during the period.

The decline in income was especially sharp for highly educated families, and for those living in the South or West.

Mean income (that is, add incomes all up and divide by the number of families) dropped by 11.1%, meaning that higher than average incomes dropped the most.  The highest-income 10% of families was hit the hardest, as were the best educated and wealthiest.  So, too, the self-employed, who tend to be the highest compensated Americans.  Oddly, income for high school dropouts–not a group anyone would wish to be in–was up a bit during the period.

Median incomes were unchanged in the East and Midwest, but fell sharply in the South and West.  This reversed the pattern of relative prosperity during the first part of the decade.


This is where the substantial economic damage was done.  Median family net worth fell by 38.8% over the three years.  Mean net worth dropped by 14.7%–implying that the wealthier were hit less hard than ordinary people.

Who was hurt the worst?  …those with most of their money tied up in highly mortgaged housing–typically families headed by someone 35-44–and those living in areas where the bubble was biggest and the collapse greatest (the South and the West).  Median net worth for 35-44 households fell by 54.4% and for families in the West by 55.3%.

In urban areas, the fall in net worth caused by the housing crisis was enough to close most of the widening wealth gap between haves and have nots which had emerged over the past 20 years.

Two anomalies:

–net worth for families headed by someone aged 75+ rose slightly

–median net worth for renters (who tend to have relatively low net worth) fell by a mere $300 between 2007 and 2010, compared with a $71,500 plunge for homeowners.

financial leverage

Net worth, of course, is net in the sense that it’s the value of assets minus the value of liabilities.  Over 2007-2010, family asset values dropped by 19.3%.  Debt stayed basically unchanged.  The negative effect of financial leverage, mostly home mortgages, is what turned the fall in asset value into a decline in net worth of twice the size.

For the worst-off decile, the fall in house prices has pushed net worth into the minus column.

my take

The decline in net worth for middle-income Americans is eye-popping.  And that’s what has caught all the media attention.  But that’s the past.  It makes for interesting cocktail party conversation, but little else.

If we look at the situation as an investment problem, the main issue is that many people placed a big, highly leveraged bet on residential real estate. It hasn’t worked out.  Carrying costs aren’t the main worry, given the dramatic decline in interest rates.  Rather, it’s how holders of too much real estate extract themselves from a highly illiquid asset and redeploy their money into something more economically productive.

The Fed data are from 18 months ago.  Over recent months, the housing market in places like Miami, southern California and Arizona has shown signs of stabilizing.  So properties may be salable for the first time in several years. The more astute or pragmatic should have started to reposition themselves already, which should imply gradually better economic performance over the coming year.

One other thing.  I’m struck by the Fed’s table showing median and mean income for families by age of head of household.  Here are the figures:

less than 35          median income = $35,100       mean income = $47,700          median net worth = $9,300

35-44          median = $53,900     mean = $81,000          median net worth = $42,100

45-54          median = $61,000     mean = $102,200          median net worth = $117,900

55-64          median = $55,100     mean = $105,800         median net worth = $179,400

65-74          median – $42,700     mean = $75,800          median net worth = $206,700

75 and over          median =$29,100     mean = $46,100          median net worth = $216,800.

Average net worth for those approaching retirement age is $880,500.  But half have saved less than $200,000.  That isn’t a lot to live on if you expect (as you should) to live another 25 years.

the future of professional investment research unfolding

brokers’ post-recession adjustments…

It doesn’t seem that long ago that Guy Moszkowski, top-ranked analyst of brokerage house stocks on Wall Street, shocked his colleagues by leaving Salomon for Merrill.  This was during one of Merrill’s on-again, off-again attempts to build a competent research effort to complement its powerful Thundering Herd sales force.

Don’t get me wrong.  There are excellent analysts at Merrill.  But my take on the firm is that its heart has always been in sales.  Its attitude is that three so-so analysts are a better use of the firm’s money than one research star.

Mr. Moszkowski is now leaving Merrill, according to the Wall Street Journal.  Where is he going?   …to Autonomous Research, a UK-based independent research boutique specializing in banks.

He’s the latest in a long line of similar departures from the big sell-side firms, as Wall Street brokers dismantle the research departments they built up over the past fifteen years or so.  Brokers are convinced that research is a chronic loss maker they can no longer afford to subsidize in an austere post-Great Recession era.

…are causing problems for mid-sized money managers

A generation ago, equity money management firms all had large in-house staffs of securities analysts who supported their portfolio managers.  Having your own “proprietary” analysis was considered to be a vital point for selling services to both retail and institutional investors.

In reality, these buy-side research departments were:


–very difficult to manage

–even more difficult to train and upgrade, and

–inevitably a mix of skilled and creative, along with mediocre and pedestrian.

During the 1990s, money managers discovered that they could lay off most (or all) of their own analysts and replace them with research bought from brokerage houses.  Figure–to pluck a figure out of the air–that it costs a firm $250,000 yearly to support one analyst.  Lay off 10 and the company saves $2.5 million a year that would otherwise come from the fees clients pay to their managers.

Better still, money management firms could “pay” for brokerage research with clients’ money–by letting the broker to charge higher-than-normal trading fees for specified transactions (a practice called “soft dollars,”  as opposed to “hard dollars,” i.e., payments in cash).  Best of all, clients didn’t seem to mind either the disappearance of in-house analysts or the fact that they, rather than the money manager, were now footing the bill for investment research.

So all but the largest money management firms did just that.  They eliminated, mostly or entirely, their own research departments.

But the brokerage research departments have been gutted over the past few years.  What do those money managers do now?

rebuilding in-house research?

I think that’s the only solution for money managers who want to stay in business for themselves.  But that’s much easier said than done.

I guess it’s possible to string together a “virtual” brokerage analyst network by doing business with a bunch of the little independent research boutiques that have sprung up recently.  But many of the best sell-side analysts now work for hedge funds, venture capital or private equity.  So there’s no guarantee you’d end up with enough coverage.  Also, there’s no reason to believe that your information network would stay together for long (a topic for another post).

Another issue:  money managers are paid a percentage of their assets under management as their fee for services.  For many traditional money managers assets under management are much lower than they were a half-decade ago.  Assets are also shrinking.  Institutional clients are taking money away from traditional managers and giving it to hedge funds.  Retail clients continue to fund their 401ks, but they’re shifting their taxable money and their IRAs to lower-cost  index funds and ETFs.

So where will the money for securities analysts come from?

Let’s say a small money management company has $2 billion in assets under management.  Let’s say it collects a management fee that averages 0.5% of assets.  That’s $10 million a year.  Take away $1 million a year for sales, general and administrative expenses.  That leaves $9 million, most of which will be split among the professional employees of the firm.

Let’s say the firm needs six securities analysts + a research director to create a bare-bones research department.  At $250,000 per analyst (including office space, travel …) and $500,000 for the research director, that comes to $2 million a year, reducing operating income by almost a quarter.  This implies everyone at the firm takes a 25% pay cut to get research up and running.  …which is a recipe for having the best talent abandon ship.

For a host of reasons, it’s probably better to merge with another comparably-sized management company.

what’s important for you and me

Don’t go to work for a small money manager expecting a job for life.

The quality of aggregate buy side research is going to get worse, not better.  This instability will mean continuing high market volatility as professionals end up reacting to news they didn’t anticipate.

Less efficient markets mean more scope for ordinary individuals like you and me to know more about specific stocks than professionals.  This means more chance of making market-beating gains.


why aren’t global portfolios more popular?

Last week the Wall Street Journal ran an article, written by a London-based reporter, questioning why Americans divide their equity portfolios into domestic and international, rather than operating the way the rest of the world works by using global equity funds.

what they are

Let’s get a definitional point out of the way.

Generally speaking, a global fund invests in both the domestic stock market and in foreign stock markets.  An international fund invests just in foreign markets.

In the US, the terms were used interchangeably until the mid-1980s.  That’s when the SEC began to provide standard definitions for the names used by mutual funds so that investors would be able to tell more easily what the fund did.  At that time, the agency said a fund that called itself “global” had to invest in several foreign stock markets and to have a minimum of 25% of its assets invested outside the US; an “international” fund had to have at least 50% of its assets outside the US.

As a practical matter, international funds normally have virtually all their assets invested in non-US markets.  Global funds vary from being US-oriented portfolios with a few bells and whistles, to funds with a hefty majority of their assets outside the US most of the time.  Some stay with relatively rigid country or regional allocations; others take an individual stock or sector approach and let the country weightings fall where they may.

One additional complication:  as domestic-oriented American portfolio management companies caught on to the power of foreign markets in the 1990s, many changed their prospectuses to allow their domestic funds to make large allocations to foreign market.  30% of the assets is a typical number.  In practice, however, most US-oriented funds have minimal foreign holdings.

a US distinction

Except for the heyday of Japan in the late 1980s, the US stock market has been the world’s dominant bourse since World War II, representing at least half of the total value of publicly traded companies worldwide almost all of the time. So global (all around the world) and international (foreign only) are clearly different.

For most other countries–take Sweden as an example–that’s not the case.  Sweden’s domestic stock market is about 1% of the worldwide total.  So, for its citizens, global and international are basically the same thing.

Also, other countries are much more trade-oriented than the US.  They have plenty of foreign partners right on their doorstep, and not an ocean away.  So every day the rest of the world announces its presence loudly and clearly. Their life experience pushes them to be global investors.

advantages of global

To my mind, global has three plusses:

–information flow  This is the life blood of any equity investment operation.  Third-party information sources (read: sell side analysts) tend to be much  more parochial than they realize and, general speaking, to be apologists for their home-country companies.  Taking a global perspective forces a manager to gather and analyze data from around the world.  This turns out to be a huge advantage.

diversification  A global portfolio spreads its risks all over the world, not in just a small subset.  Imagine that you wanted to get exposure to smartphones, but you can’t buy Apple.  You’re a Europe fund and your only choice is Nokia.

–learning the local rules  Local investor preferences can strongly influence which stocks are winners and which are losers.  In my experience, one-country managers tend to be oblivious to this and to assume, incorrectly, that their own customs transfer seamlessly around the world.  It’s sort of like thinking you can use your local money in every foreign restaurant or store, or that all TV programs in a foreign country will somehow be in your language.


–Running a global portfolio requires more skill than a one-country portfolio.  So you’re more dependent on the expertise of the management company.

–It’s harder to look at a list of fund holdings and figure out whether the strategy makes sense.

–You have more of your eggs in one basket.

why global isn’t more popular

I made an initial sales call in the mid-1990s on a major US corporation that was a  long-time pension fund customer of my firm.  My performance numbers, over nearly a decade, were better than those of any equity manager the customer had hired.  And the executive who made the manager selection decisions was deeply dissatisfied with most, if not all, of his international managers.  Sounds promising, you might think.

However, the executive opened the meeting by saying he was talking to me as a courtesy to our sales representative, but that there was absolutely zero chance that he would ever hire me.  Why?  He didn’t believe that anyone could possibly be successful making global equity investment decisions.

I was curious and I realized all I could get from this meeting was information.  So I asked the client how he could think this, since a large part of his own job was making global decisions on asset allocation.  His reply was very instructive.

He said, in effect, that his power and status in his company stemmed from the fact that he made the global asset allocation decisions, and that he interacted with the series of  highly paid pension consulting firms that gave him advice on what to do.  If he began hiring people like me, his position in his company–and, by implication, that of the consultants his firm had hired–could potentially be diminished.  While my services might benefit corporate retirees, they were a threat to his power that he couldn’t tolerate.

The WSJ article quotes an investment advisor who says basically the same thing.  He maintains his control of his client by ensuring that the investment process is complex and that he has a central role in the decision-making.

Global offers the possibility of better performance and lower fees.  The status quo understands, and fears, this.