Why Do Mutual Fund Investors Employ Financial Advisors?
Posted: 22 May 2019
Date Written: July 15, 2008
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: Suggested Citation