Why Do Mutual Fund Investors Employ Financial Advisors?

Posted: 22 May 2019

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2008

Abstract

The actual returns on mutual funds earned by investors are much lower than the rational behavior paradigm of financial economics would suggest. Certainly this is evidenced in the performance of funds distributed through the advisor channel. From the evidence here and elsewhere, much (if not most) of how and where investors go about investing in funds has behavioral biases as well as other behavioral and knowledge overtones. It is difficult to clearly differentiate these biases from the other behavioral and knowledge influences.

Finally, given that investors possess human behaviors and biases, it is not surprising that many of them use the advisor distribution channel, but neither should it be surprising that this often involves sizable costs. Thus, it is crucial that investors perform due diligence to ensure that prospective advisors are fee only, reputable, and good fits in all other regards.

Keywords: mutual funds, advisor channel, rational behavior. behavioral biases, fund costs, fee only

JEL Classification: G2, G23, G28

Suggested Citation

Haslem, John A. and Haslem, John A., Why Do Mutual Fund Investors Employ Financial Advisors? (July 15, 2008). https://doi.org/10.3905/JOI.2008.17.4.091, Available at SSRN: https://ssrn.com/abstract=1115886 or http://dx.doi.org/10.2139/ssrn.1115886

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

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University of Maryland - Robert H. Smith School of Business ( email )

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