It's Time for a Change

Levin, Ross
May 2004
Journal of Financial Planning;May2004, Vol. 17 Issue 5, p26
Academic Journal
The article focuses on the need to reform the financial services industry in the U.S. The mutual fund scandals have focused much conversation on switching to individual stocks or managed accounts. But those are solutions to the wrong questions. The issue is not whether mutual funds are an appropriate vehicle for portfolios, but rather, what is the model that needs to be used regarding mutual funds so that they can be better than they are. Exchange-traded funds are an example of progress in this area, but trading costs make them problematic for small investors, and a lack of product makes them impractical for those who use active management. While lower investment management fees are an important benefit to retail customers directly serviced by the no-load companies, lower fees may also prove to be disruptive to the economics of fund companies distributing through clearing firms and brokers or dealers. Unless revenue-sharing requirements are renegotiated, fund companies operating on lower management fees will not be able to compensate financial intermediaries sufficiently to remain on their platforms. Small revolutions have been occurring in the industry regularly. It is time for a bigger revolution. Some structural change is required and should be offered.


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