Question

“In an efficient market, money managers and financial advisers have little value to investors.” Do you agree or disagree with this statement? Explain. (A proper answer to this question should include the meaning of an efficient market and its implications.)

Answer 1

I agree with this statement because Efficient market advocates that all the privately available information and publicly available information have already been discounted into the stock price so there is no scope for making any additional rate of return than the market rate of return, and hence money managers and financial advisors will not be of any use because they are mostly making strategies which are trying to beat the market rate of return but it is not possible in an Efficient market that they can beat the market rate of return so this is not applicable in Efficient market because Efficient market will reflect all the privately and publicly available information into the stock price and they will not be offering any kind of discrepancy between the price and value for these managers to maximize upon, so these managers and the financial advisors have very little role to play in an Efficient market.

So, it can be summarised that financial managers and financial advisors have very little role to play in Efficient market because Efficient market will not be offering any kind of additional rate of return so people will not be offering these financial advisors and managers with their money to maximize their rate of return and they will rather believe in passive investment and they will be investing into the indexes.