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Editor's Note: Below is an excerpt from a recent institutional research note written by our Demography analyst Neil Howe. To access his research email sales@hedgeye.com.

The Big Generational Trends Behind Fidelity's No-Fee Index Funds - demographics cartoon 03.23.2016

Fidelity has rolled out no-fee index funds, an industry first. Expense ratios across the industry have been edging closer to zero for some time; the fact that Fidelity won the race, given its historical association with expensive star money management, is the bigger surprise. (Bloomberg Businessweek)

Neil Howe: Totally shrewd move by Fidelity--what's called, in supermarkets, the loss leader strategy. In fact, Fidelity generates nearly all of its earnings growth (which remains very healthy) from sources other than fund management fees--e.g., from overseeing DC pension plans, providing financial advisory services to high-end families, and acting as custodian for myriad small funds. Rather than keep championing the actively managed fund, a battle it is obviously losing to passive indexers like Vanguard, Fidelity is marking its own index down to zero to get people in the door and onto its vast platform.

The move will also help its brand. During the Magellan Fund's heyday, Fidelity forged its reputation among Silent and Boomers entering midlife as active management that's worth the price. Today, Xers entering midlife don't want to pay anything to fund "middlemen" and Millennials love the idea of investing by algorithm. So by embracing "zero," Fidelity may be able to realign itself with the new generational lineup. Long term (see: "Once Again, A Nation of Savers"), the entire investment industry is going to have to derive more of its margin from personal services and less from a commoditized promise to the average saver that it can beat the average return.

Companies are incorporating AI tools into the hiring process. This decision is a double-edged sword: While AI hiring could eliminate potential biases, diminishing the human role in the hiring process may mean missing out on a candidate high in intangibles such as emotional intelligence and cultural fit. (Cassandra Report)

NH: This trend toward robotic "optimized hiring," first introduced by Silicon Valley Xer managers, is spreading rapidly. (See: "Putting Job Seekers to the Test.") HR personnel save on expensive interview time, and the whole multi-tier hiring process is shepherded by AI-Big Data algorithms that promise to optimize employer-specified target attributes. Want friendliness? Want curiosity? Want conscientiousness? The algorithm will screen to give you whatever you want using questions having no apparent right or wrong answer. (Sample questions: Have you ever fantasized about being famous? Do you know why stars twinkle?) Millennials, who apparently have an infinite tolerance for endless and repetitive testing, don't seem to mind this new approach. As customers, after all, they are already used to dealing with companies through chatbox simulators. (See: "Ex Machina: Empathy.")

Reporter Robert Weisman explores religious and spiritual fluidity among Boomers. Many are returning to the traditions of their youth while also incorporating elements of different faiths: “I’m open to wherever...meaning may come from. I consider myself a lover of God and a lover of Jesus. I’m also a lover of Buddha, Mohammed, and Moses.” (The Boston Globe)

NH: Ever since they came of age as political radicals, hare krishnas, born-again Christians, or just outlaw easy-riders, Boomers have earned their reputation as questers for ultimate answers. In our "Fourth Turning" paradigm, they belong to the "Prophet" archetype--a generational personality that only arrives once every 80 or 90 years.

Wade Roof, who wrote the definitive book on Boomer attitudes toward religion ("A Generation of Seekers: The Spiritual Journeys of the Baby Boom Generation"), says Boomers practice "serial orthodoxy," always moving from one fervent conviction to the next. Roof wrote his book in the mid-1990s. If he were re-writing it today, he would have to discuss how these journeys are continuing to transform Boomers as elders. Yes, there are the downsides--the strong Boomer urge to experiment and their weak social ties, as evidenced by surging rates (in their age bracket) of drug use, depression, divorce, and living alone. But, as this article points out, there is also the endearing side: Has any other generation ever tried so hard and so earnestly to figure the universe out?

The Big Generational Trends Behind Fidelity's No-Fee Index Funds - market brief