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

Posted: 28 Sep 2009

See all articles by Daniel Bergstresser

Daniel Bergstresser

affiliation not provided to SSRN

John Chalmers

University of Oregon

Peter Tufano

Harvard Business School; University of Oxford Said Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 2009

Abstract

Many investors purchase mutual funds through intermediated channels, paying brokers or financial advisors for fund selection and advice. This article 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 with two hypotheses: that brokers deliver substantial intangible benefits that we do not observe and that there are material conflicts of interest between brokers and their clients.

Keywords: G2, G11, G24

Suggested Citation

Bergstresser, Daniel and Chalmers, John and Tufano, Peter, Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry (October 2009). The Review of Financial Studies, Vol. 22, Issue 10, pp. 4129-4156, 2009, Available at SSRN: https://ssrn.com/abstract=1479110 or http://dx.doi.org/hhp022

Daniel Bergstresser (Contact Author)

affiliation not provided to SSRN

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

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

University of Oxford Said Business School

Park End Street
Oxford, OX1 1HP
Great Britain

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