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Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry


Daniel Bergstresser


Harvard Business School

John Chalmers


University of Oregon

Peter Tufano


University of Oxford - Said Business School; National Bureau of Economic Research (NBER)

October 1, 2007

AFA 2006 Boston Meetings
HBS Finance Working Paper No. 616981

Abstract:     
Many investors purchase mutual funds through intermediated channels, paying brokers or financial advisors for fund selection and advice. This paper attempts to quantify the benefits that investors enjoy in exchange for the costs of these services. We study broker-sold and direct-sold funds from 1996 to 2004, and fail to find that brokers deliver substantial tangible benefits. Relative to direct-sold funds, broker-sold funds deliver lower risk-adjusted returns, even before subtracting distribution costs. These results hold across fund objectives, with the exception of foreign equity funds. Further, broker-sold funds exhibit no more skill at aggregate-level asset allocation than do funds sold through the direct channel. Our results are consistent either with substantial non-tangible benefits delivered by the broker-distributed sector or with conflicts of interest between brokers and their clients.

Number of Pages in PDF File: 36

Keywords: mutual funds, distribution channels

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Date posted: November 8, 2005  

Suggested Citation

Bergstresser, Daniel and Chalmers, John and Tufano, Peter, Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry (October 1, 2007). AFA 2006 Boston Meetings; HBS Finance Working Paper No. 616981. Available at SSRN: http://ssrn.com/abstract=616981 or http://dx.doi.org/10.2139/ssrn.616981

Contact Information

Daniel B. Bergstresser
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
John Chalmers
University of Oregon ( email )
Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-3337 (Phone)
Peter Tufano (Contact Author)
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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