29% of People Trust the Fund Industry

April 28, 2008

Bill Donoghue at Marketwatch reports on a survey of high-net worth investors which reveals that the vast majority think the fund industry is less trustworthy than (gasp!) auto mechanics!

About 71% of investors don't trust the fund industry.

Meanwhile, 66% say fund firms don't take responsibility to protect investors' financial well-being.

In fact, mutual funds are at the bottom of the list of trusted service providers -- below mechanics and insurance agents.

Investors' major source of distrust is the disclosure of fees, risks and tax implications. These caveats are spelled out in excruciating detail in funds' unreadable prospectuses (which are supplied to everyone except retirement savings plan participants)"

As Donoghue points out, the survery was commissioned by Barclays whose exchange traded fund products are mutual fund competetors, so the results should be taken with a grain or salt or two - but frankly investors' distrust of the mutual fund industry is well founded. Mutual fund companies exist to make money, and most are less interested in investors' 'financial well-being' than thier own. If they weren't, all funds would be no-load and have a .5% expense ratio. The good news is that there are some fund companies that have realized that the best way for them to succeed is to provide high-quality and low-cost and no-load funds to investors. Just like there are honest mechanics and those that will tell you you need a new engine when all you need is a tune up, there are good fund companies and those that will launch internet funds at NASDAQ 5000.