While they
trust financial advisers, most wealthy investors are not satisfied with the amount of information they get from their mutual fund companies, according to the results of a new survey.
A survey of 1,004 investors with a minimum of $500,000 in investible assets, which was conducted by Cogent Research LLC of Cambridge, Mass., between Jan. 24 and Feb. 1, found that the majority of respondents wanted the fund industry to do a better job of explaining the fees, risks and tax implications related to their investments.
The study was commissioned by iShares Funds, a division of
Barclays Global Investors of San Francisco. As one of the biggest sellers of exchange traded funds,
Barclays is a competitor to many mutual fund companies.
Seventy percent of those surveyed used a financial adviser. And 72% of those said they trusted their adviser and believed that their adviser was looking out for their best interests. In fact, 87% said they trusted their advisers as much as they trusted their family doctor. Only 9% said they planned to change their adviser in the next year.
Respondents sang a different tune when it came to the mutual fund industry, however.
Only 29% of respondents said they trusted the fund industry. Meanwhile, 71% said they either distrusted the industry or were uncertain whether to could
trust the industry.
The survey also found that 54% of respondents were dissatisfied with how fund companies disclosed information about fees and that 55% were dissatisfied with how information about risks was conveyed.
Meanwhile, 61% were dissatisfied with the way that fund companies explained the tax implications of investing in their products, according to the survey.
The survey is a wakeup call for the fund industry, said Lee Kranefuss, chief executive of iShares.
"People do use mutual funds," Mr. Kranefuss said. "They are a household product. But that doesn't mean they don't have other alternatives. The fund industry does have the central role in the U.S. savings pie. But there's the possibility for money to flow in other directions."
As president of the Washington-based Investment Company Institute, the fund industry's powerful trade group, Paul Schott Stevens came to the defense of the fund companies.
"The overwhelming majority of funds are sold with some adviser in the loop," said Mr. Stevens, who was unfamiliar with the results of the survey. "The adviser is there to guide the investor through the thicket of expense, risk and fees. There's need for both [advisers and fund companies] to do as good a job as possible."
Howard Schneider, president of Practical Perspectives, an industry consulting firm in Boxford, Mass., wasn't surprised with the survey's findings with regard to the fund industry.
"There's a lot of noise in the environment right now," he said. "The markets are down. Investors may see their mutual funds in general declining. There's news about the subprime mess. They are experiencing capital gains that many of them have to pay. These things can create misapprehension of the investment industry in general."
That said, Mr. Schneider added that "there are a lot of products out in the marketplace that are far less transparent."
Kathy Longo, principal at Accredited Investors Inc. of Edina, Minn., which has $720 million in assets under management, thinks it's the adviser's job to educate clients about fees and risks. But more information is needed about taxes, she said.
"Clients do say they wish they had more information about the tax implications," Ms. Longo said. "The fact is, you never really know until the end of the year how much gains will be distributed. Some don't like mutual funds because they cannot control the tax piece."
Fund companies could also do a better job in communicating style drift and taxes, said Peter Lynch, president of Peter Lynch Inc. of Red Bank, N.J. The nine-year-old firm does not disclose assets.
Style drift is an issue for investors. "It's hard to get the information until [the firm] reports what they are holding at the end of the quarter," Mr. Lynch said. "You never have your finger on the pulse at all times."
As a result, Mr. Lynch uses asset allocation models offered by the fund firms. "They're not going to drift on you," he said.
The survey also uncovered doubts about the role of the media coverage of financial matters.
Seventy-three percent of respondents said the media sensationalized issues and highlighted only certain issues. Meanwhile, only 19% said the media provided accurate reporting.
E-mail Sue Asci at [email protected].
