Category Archives: RIA

Continued Mutual Fund Underperformance

Most of our clients know we are big believers in low cost investing with passive investment vehicles. Although it is easy to grasp the concept of paying lower costs, it is harder to grasp that you can pay lower costs and also outperform most other investments.

The most recent SPIVA report, published by Standard & Poor’s, is now available. In 2014, over 86% of mutual fund managers (large cap) underperformed their benchmarks. Although this makes a pretty good case for investing in indexes (ETFs), mutual funds still outnumber ETFs by 10 to 1, based on assets under management.

Pundits used to argue that inefficient asset classes could outperform the market, but as you can see in the report, it is pretty standard across the board, active management loses over nearly every time period and asset class!.




Legal Double Dipping

For the most part, there is a reason as to why a Bank or Brokerage firm puts a mutual fund in your account – FEES. Whether it’s through being paid directly by offering up a propriety product or through revenue sharing by allowing another fund family to participate on their platform, Brokerage firms have found a way to legally double dip on your account. The adviser makes his commission or asset management fee for managing the account, and then the institution makes its fee from the mutual fund.  This is a very lucrative, but far from objective practice endeavored upon by most large brokerage firms. Most clients have no idea what is going on. This is because the conflict of interest is only revealed to them in tiny print on the back page of a prospectus, which is rarely read. If the firm does have proprietary funds, many hide the affiliation by naming the fund family something that is hard to trace back to the parent company.

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