The mutual fund advertising rule that the Financial Industry Regulatory Authority imposed in April 2007 that requires ads to contain fee information if they are also going to tout performance appears to be for naught.
Even investors aware of the importance of fees concentrate more on performance, university researchers found in a study that will appear in the December issue of the Journal of Consumer Policy.
“The only way we can describe it is that there is an overwhelming preference for past returns; call it greed,” commented one of the researchers, Thomas Smythe, an associate business professor at Furman University. “Psychologically, people are absolutely focused on the return paradigm. We chase returns.”
The report said, “While FINRA has taken an important step to provide information to investors, the impact, in the form of rational investment decisions, may be minimal and may not lead to more informed consumer decision-making.”
The researchers suggest that rather than present fees in isolation, the average fee in a fund’s style or sector should also be presented.
However, the Investment Company Institute maintains that lower-cost fees draw the majority of fund flows.