Load funds, brokers bashed by study

A study released today by a group of independent fee-based advisers suggests that investors overall are getting bad mutual fund advice from stockbrokers. The study, sponsored by the Zero Alpha Group, which promotes fee-based advice using passive strategies, said investors in load funds significantly underperform a buy-and-hold strategy with the same funds. The study compared actual investor returns to the nominal returns reported by both load and no-load funds. B-share investors fare the worst, underperforming a buy-and-hold strategy by 2.28% annually, the study found. By contrast, investors in pure no-loads, which charge no 12b-1 fees, underperformed by only 0.78%. Members of the Zero Alpha Group used the study to call on the SEC to impose a fiduciary duty on brokers. “There is clearly a distinction between advisers acting as fiduciaries and advisers who do not,” said Jeff Buckner, founder and president of Plancorp in Chesterfield, Mo., and a member of the Zero Alpha Group. One analyst, Avi Nachmany, director of research at Strategic Insight in New York, a consulting firm, doubted the study's conclusion, citing flows into technology/growth funds, which peaked in February 2000 right as the market peaked. “It is perplexing to imply that most do-it-yourself investors ... tend to make more prudent choices than investors helped by [advisers],” he said. The study looked at no-loads as a group, and did not distinguish between no-load funds managed by advisers or purchased directly by investors. The study can be found at: http://www.zeroalphagroup.com/news/Investor_Timing_final_final_12-4-07.pdf