Why can’t Investors Pick the Right Index Fund?

Investors leave large amounts of money on the table when investing in index funds, a

popular investment product that accounts for 40% of equity funds. I show that even though

high fees strongly predict poor performance, investors have little sensitivity to fees. This can

be explained by fund intermediation in the retail sector and the legal standard of care that

intermediaries have towards their clients. Net inflows to high-fee funds are higher when brokers

and financial advisors receive sales commissions from the investment management company.

When funds are sold through intermediaries held to higher standard of care, such as those

sold to employer sponsored defined contribution pension plans, this is no longer the case.

Together, this evidence suggests imposing fiduciary duties on fund intermediaries improves investor welfare.

Further information:

In case you would like to attend this online job market seminar please contact mlissenberg@rsm.nl to receive the login details for the seminar.