Mutual Fund Managers don’t invest in their own Mutual Funds

Its official! Most mutual fund managers do not have the confidence to invest their own money in the mutual funds they manage. Are you surprised? I’m not.

I have always maintained many of them use your money to find market bottoms, pump and dump stocks just before bonus time and in general use the fund to manipulate the markets.

Let me qualify that by saying there are probably some ethical fund managers out there, but the majority according to this report wouldn’t touch the mutual funds they manage with a ten foot pole.

In an article called “No skin in the Game” by Chuck Jaffe on MarketWatch he says a Morningstar Inc study found that,

  • In 46% of the domestic stock funds surveyed, the manager hadn’t invested a dime.
  • Other asset classes were far worse with nearly 60% of foreign stock funds reporting no manager ownership.
  • Two-thirds of taxable bond funds having no managers with money in the fund.
  • Up to 70% of balanced funds having no manager cash.
  • 78% of muni bond funds having shareholder cash only.

What is really telling though is what the Morningstar director of mutual fund research had to say about this study. He said,

“He believes there’s a direct correlation between investing in a fund and performance.”

You need to print that off and pin it on your wall. It is that important.

He goes on to say that whilst it might not be the reason to pick a fund you should find out if the Mutual Fund Manager for that fund has actually invested in it. If not you may want to look for another fund.

He suggests fund managers should get their bonuses paid in shares in the funds they manage and not let them cash out those shares. That’ll give them some focus.

I believe this should also be applied to your financial planner. A large portion of their commissions paid to them each month should be in shares in the funds they allocate to your portfolio. They should have to remain in those funds as long as you have them since they get paid for that period too. It might help them gain some empathy for Baby Boomers in retirement when those funds lose money.

Many reading my blog may believe me to be very cynical ;0( about the wealth management industry. The truth be told I believe Baby Boomers are in desperate need of wealth managers and financial coaches. But what we have got is a bunch of people hell-bent on milking us for all they can get.

There is no ethics in what many of them do. They are trained from day one to generate fees for their firm which means they end up ripping us off and taking our hard-earned money through high fees and hidden charges. If we don’t wake up and take action we only have ourselves to blame.

Our governments have insisted we save for our own retirement. This has never been done before. It is an experiment. Even if Baby Boomers get it right, the wealth managers will find ways to take our money in retirement. They are driven by profit not fiduciary responsibility. And there appear to be very few penalties for their bad behaviour.

Governments need to get serious about disclosure and send people to jail who violate the trust placed in them. Otherwise they will find many of us Baby Boomers on their doorstep looking for handouts because we’ll have no money to live on.

Why not email your financial planner and your mutual fund managers and ask them where they have their money invested right now? Insist they tell you or you’ll take your money out. Won’t that be fun?

3 Responses to “Mutual Fund Managers don’t invest in their own Mutual Funds”

  1. Ron Robins says:

    Great article! I’ve been advocating many of the points you’ve made in your post for many years.

    Personally, I also feel that there should be a complete separation between those who do your financial planning and those that get compensated for the actual trades. A financial planner should be paid a fee for doing an unbiased financial plan. A separate, unrelated broker is then paid to execute the trades. Only in this way can investors be assured of true advice that is fully in their favour.

    Incidentally, I run an ethical investing site that might interest you and some of your readers at http://investingforthesoul.com/

    Continue your great work! Best wishes, Ron Robins

  2. admin says:

    Ron,

    Thank you for taking the time to comment on this post. I think your idea of a separation of financial planners from the brokers is very valid. In Australia right now they are reviewing this because have 9% of our salary placed in compulsory superannuation. The financial industry got about $2.5Bn in fees last year – their best year ever I’m told. Of that around $860M is commissions on compulsory contributions. That is definitely not right.
    We’re working on it šŸ˜‰

    I checked out your site and I think it is well laid out, and full of good information. I particularly like the layout of all the article snippets. People now seem to be looking for ethical investments more and more these days.

    Thanks again for your positive comments.

    Regards,
    David

  3. Ron Robins says:

    David — I appreciate your comments. Good luck and best wishes, Ron Robins

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