Small investors, mutual fund pricing, defensive investing

October 20 Roundup: Mutual Fund News & Opinions

mutual fund pricing

Small Investors Could Lose Financial Advisors

Much is changing in the world of American mutual funds and investments generally, as a new Department of Labor Fiduciary Rule comes into effect.

The latest comes from Investor’s Business Daily, which warns many small investors could be cut loose by their financial advisors. The new rule mandates that advisors and brokers must provide “. . . advice that is in the best interests of clients even if it is not the most profitable option for the service provider.”

The article is titled, Are You One Of The Small Investors That 37% Of Financial Advisors Are Planning To Dump? and it says,

“One of the easiest ways to comply with the new rule is to drop clients whose accounts are too small to service fairly at a profit. But that could be bad business in the long run. “Many firms are looking to digital advice as a small-account offering, largely to reduce the cost to serve these small clients while still cultivating relationships that could turn larger over time,” said Tom Corra, chief operating officer of Fidelity Clearing & Custody Solutions.”

What, if anything, that happens to your account will depend on the advisor/broker that serves you. Some will transfer small investors to roboadvisors, those new online programs that create automated investment recommendations based on your answers to a series of questions you answer online.

Mutual Fund Pricing: Yet Another Wrinkle

As a Morningstar article points out, mutual fund pricing in America may not have been optimal, but at least you knew where you stood. If you bought through some advisors or brokers, you paid a front-load or a back-load to cover the agent’s commission. If you invested on your own you could avoid paying a load; also you could avoid loaded funds by using a discount broker.

As John Renkenthaler points out in Mutual Fund Pricing Is a Mess, no-load no longer means no load. He starts by describing the basics of the ‘old’ system,

“If the investor chose to pay for the fund’s distribution, by going through a financial advisor, the transaction was upfront and clear. (The underlying mechanism that funneled monies from the fund to the advisor was obscure, but the charge itself was not.) If the investor chose not to pay for distribution, then that process was clear as well. Two paths existed, to address two needs.”

But, there’s been a change, Renkenthaler says,

“All this disappeared with the introduction of the 12b-1 fee, which put distribution charges into the expense ratio, and thus muddied the payment waters.”

So there’s yet another question for your advisor/broker, “Do you charge 12b-1 fees in your management expenses?” And yet another mutual fund pricing question to keep us scratching our heads.

Defensive Investing

defensive investing

To paraphrase Bob Dylan, the times they are a . . .  something! In his 3rd Quarter letter to fundholders/investors, Joseph Boskovich of Old West Investment Management says he’s concerned about the Federal Reserve’s policies, and about anemic growth around the world. Here’s his take on the Fed,

“During the third quarter the S&P 500 spent more than two months trading in a range of plus or minus 1% of its all time high. This is only the fifth time since 1928 that the index has spent that long in such close proximity to its all time high. What does this mean? The Federal Reserve Bank Board has been actively focused on keeping the stock market pumped up, which is clearly not their mandate. At Old West we are invested very defensively, with no expectation that the Fed will be able to continue priming the pump indefinitely.”

And, on growth, Boskovich says,

“The biggest issue facing the markets going forward is anemic worldwide growth. I believe growth here and abroad is being stifled by excessive debt. Global debt is at an all time high of over $150 trillion, which is 225 % of global GDP. This debt figure includes households, companies and governments, and it excludes banks and other financial institutions.”

He believes growth is being hampered by high levels of debt, and that’s due at least in part, to central banks keeping interest rates low.

The Writer & Curator

Robert F. Abbotttop mutual funds is a freelance writer; see his profiles and analyses of value stocks at GuruFocus.com . He is also the author of Big Macs & Our Pensions: Who Gets McDonald’s Profits?

In this book, you will:

  • Discover the Ownership Revolution, and what it means to your retirement funding.
  • Find out how much of your lunch bill is a profit for McDonald’s, and who gets those profits.
  • Learn how corporate profits fuel one of the greatest social programs ever developed.

Click here to read a free preview at Amazon.com