My brother was here for a visit this week, and we had an interesting conversation about mutual funds. My dad used to be a stock broker, and now works for a mutual fund company that sells actively managed funds that carry a load. Of course he believes that you're getting the value of research that you're paying for with the load and management fees. My brother got both an engineering degree and an MBA. He now works in marketing, but because of his degree has more background in finance than I do.
Anyway, when my dad left his former company, there was a big going-away dinner that my brother attended. He said that it hit him that all these guys at the dinner, who were full-service brokers, are really just salesmen. They don't have a finance degree or tons of training in portfolio analysis. The advice they give is basically fed to them by the parent company.
My brother has had more interest than me in actively investing. He got burned on penny stocks early on, then a couple of years ago he looked at his individual stock-picking efforts and decided he was better off in mutual funds. After the recent market crash, my brother said he took a look at the actively managed funds he owned that were from the company my dad works for. In his opinion, they fared just as badly as the rest of the market, and did not see a large upside during the boom years. He has since unloaded most of his actively managed fund and moved the money to low-cost index funds.
While I question his judgement in getting out at the bottom, and I have no idea how big his portfolio is or which funds he used to own, it was interesting to know he had changed his strategy to one I hear many people here using.
My brother's thoughts on mutual funds
April 19th, 2009 at 12:25 pm
April 19th, 2009 at 02:56 pm 1240152996
April 19th, 2009 at 03:22 pm 1240154525
I worked for a transfer agency of a mutual fund company (think customer service, ect.) and I can say that yes...sales are involved. The load is primarily there to pay the sales person. The parent company gets a portion, too...but it's all for the financial planner who sells you the funds.
April 19th, 2009 at 04:07 pm 1240157231
April 19th, 2009 at 06:19 pm 1240165166
April 20th, 2009 at 12:29 am 1240187360
April 20th, 2009 at 01:41 am 1240191665
April 20th, 2009 at 03:29 am 1240198164
April 20th, 2009 at 05:01 am 1240203703
And others, even in the MSM, are catching on.
http://www.theatlantic.com/doc/print/200905/goldberg-economy