Despite all the advantages of exchange traded funds (ETFs), advisors still seem to be practicing a herd mentality when it comes to investing, according to Kevin Burke at Ignites.com.
A new study published by Sway Research and Reuters AdvicePoint reveals that advisors pretty much stick with the same small handful of fund companies. Chris Brown at Sway says the advisors invest 69 cents of every mutual fund dollar into the funds of the top three, leaving the rest of the funds to fight over the scraps.
What’s the reasoning behind it? The story offered a few ideas. Chief among them are fears that clients might fire or sue their advisor if they show a hankering to venture outside of the major fund brands. Another reason is that venturing outside of the norm requires a ton of research, and it can be overwhelming.
The benefits of remaining in familiar territory and sticking with the pack don’t outweigh the downsides: such a strategy leads to underperformance, the fees are high and the diversity is low.
Where is the love for ETFs? Keep them in mind if you’re in the market for lower fees and greater diversification with less risk.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.