Financial Advisors and Mutual Fund Selection

Jones, Michael A.; Lesseig, Vance P.; Smythe, Thomas I.
March 2005
Journal of Financial Planning;Mar2005, Vol. 18 Issue 3, p64
Academic Journal
Previous research has found that individual investors rely heavily on mutual fund advertising and on raw returns when making fund purchase decisions. To date, however, little empirical work has investigated the mutual fund decision-making process of financial advisors. This paper provides survey results from over 500 financial advisors regarding their decision process in buying mutual funds. Specifically, this research identifies the importance of various fund characteristics that financial advisors use when recommending mutual funds, as well as the importance of various information sources. The results indicate that financial advisors place greater importance on objective information sources such as comprehensive data sources and independent rankings, and much less importance on fund advertising and popular press publications. When choosing among mutual funds, the results indicate that financial advisors place greater importance on performance relative to other funds with similar style, fund objective, fund risk, fund manager tenure, and fund manager reputation, while placing less importance on sales loads and 12b-1 fees. The results from the research also indicate that financial advisors' satisfaction with their sales productivity in dollars and their satisfaction with the commitment of their clients is significantly correlated with the importance placed on various information sources and fund characteristics. The findings in this paper highlight the value that financial advisors contribute to their clients as they appear to emphasize important information in the mutual fund selection that Individual investors either fail to consider or are unable to access. INSET: Executive Summary.


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