Baby Boomers – Study says No Value in hiring a Financial Planner

Employing a Financial Planner to manage your Mutual Funds can result in poorer investment returns than if you had chosen the Mutual Funds yourself a recent study shows.

This came from a detailed study written in October 2007, “Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry” and written by Daniel Bergstresser of Harvard Business School, John Chalmers of the University of Oregon, and Peter Tufano of Harvard Business School. You can click on the title above and download the 36 page report for free. It is actually quite readable 😉 Here is their closing paragraph which makes for sobering reading if you use a financial planner and do not direct them in managing your nest egg. They state:

“In summary, we find a reasonably clear pattern of results. We find that the brokered channel sells funds with inferior pre-distribution-fee returns. The channel does not show any evidence of superior aggregate market timing ability, and shows the same return-chasing behavior as observed among direct channel funds. Finally, more sales are directed to funds whose distribution fees are richer. This work leaves us with the puzzle of why investors continue to purchase funds that appear to be no better at substantially higher costs. The answer could be that we, as researchers, failed to measure important intangible benefits, or that consumers of brokers fail to consider the costs and benefits of this relationship.”

What is significant about this study is:

It analyzed over 4,000 Mutual Funds sold by financial advisors and compared the costs and returns to choosing the same Mutual Funds yourself.

Their analysis was over the period 1996 to 2004. So it covered the bull market up to 2000 when the DotCom crash occurred and the market lost almost 40% of its value by the end of 2002. This is very important as it covers both sides of the market.

So there we have it from a recent and very extensive study. Using a financial planner to pick our Mutual Fund investments for us resulted in poorer returns than if we had selected them ourselves.

What is really telling though is they conclude that they do not know why we even bother using financial planners ;-( They offer a couple of suggestions as to why, but I believe a major factor is that financial planners are part of a massive and very successful marketing machine designed to convince us we cannot invest in the market ourselves. We need to employ the “professionals” – the financial planners, to do it for us. The study shows this is not the case and in fact will lead to poorer returns in the long run.

I found this information on a post “Financial Advisors Useless Says Study” on Kim Snider’s Blog which gives more insight into the studies findings. She makes an excellent point herself about the need to educate ourselves and get control of our Nest Egg.

She also mentions many of the topics I have written about in my eBook on protecting your nest egg in retirement too.

Her blog is well worth a visit to read her other posts especially on “Fees, Scandal and Conflict of Interest” for more about the financial planning industry.

But let me state whilst I do have major concerns about financial planners as a group, there are individual planners out there that really do offer value. We just have to find them. I think if you find one they can provide real value only if you can take charge and direct them on your net egg protection strategy.

As one financial planner put on his Blog ” If it wasn’t for the other 97% of financial planners, we 3% would have a good name”. Enough said I think.

2 Responses to “Baby Boomers – Study says No Value in hiring a Financial Planner”

  1. Rita says:

    Thank you for the information on the study.

    I write a blog for boomer consumers called The Survive and Thrive Boomer Guide at


  2. […] study shows. This came from a detailed study written in October 2007, ???Assessing the Costs and should you start collecting Social Security? Coeur d’Alene PressThis year, the oldest baby […]

Leave a Reply

CommentLuv badge