Active managers did it to themselves. That much is clear. I would beg to differ, though, about what really brought about all the damage.
You say it's because they let academic concept contravene the mandate. I say it's because of prevalent poor performance.
http://www.bloomberg.com/news/articles/2014-06-03/the-nasty-brutish-lif…
It seems most of the times active managers deviate from benchmarks they hurt returns. People came to idolize benchmarks because deviating from them is mostly a bad idea.
Think about it. Active managers could de-emphasize some concepts and unshackle themselves as you suggest but then returns might turn out inferior all the same.
I think the real problem is talent. The industry needs capable calibers that can deliver better performance than the horrible 4 in 5 fail ratio. Hence I agree with the first point on your list of remedies. 'Earn AUM through performance, not marketing.' This really is first and foremost.
Thank you.