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Planners' Disenchantment with Fund Companies Sets In


As the stock market's doldrums roll on, financial advisers are starting to lose patience with mutual fund companies. That's the message from a survey of more than 2,000 financial professionals at wirehouses, banks, independent firms and elsewhere by Boston-based research firm Dalbar.

The respondents' overall opinion of fund companies fell to a 3.42 rating out of 4 this year from 3.5 last year.

All-Time Low

And for the first time in the survey's 16 years, mutual fund firms' marks dropped in each of seven categories, from overall evaluation of fund companies to investment management to operations support.

In addition to their overall rating, fund companies lost ground in the areas of:

* Investment management: Their rating fell to 3.24 this year from 3.31 last year.

* In-person wholesaler support: 2.84 this year from 2.88 last year.

* Sales literature/marketing: 3.30 from 3.33.

* Inside wholesaler support: 3 from 3.04.

* Operations support: 3.18 from 3.22.

* Quality of communication: 3.16 from 3.27.

Quality of communication had the steepest drop. Respondents complained that fund firms fell short when it came to giving them talking points to reassure jittery clients, according to Dalbar Research Analyst Jenifer Stromfors. "Fund companies must realize the need for meaningful communication with financial professionals in light of poor returns this year," said Dalbar President Lou Harvey.

But some financial planners believe it's pointless to use the fund industry as a scapegoat for the broader market's woes. "Funds performed like the market performed," said Benjamin Tobias, a CFP with Tobias Financial Advisors in Plantation, Fla. "Some outperformed, and some underperformed. If an adviser is down on the mutual fund industry, maybe the adviser hasn't done due diligence in selecting appropriate funds."

Charles Hughes, Jr., a planner in Bay Shore, N.Y., agrees with that view. "Certainly some funds were managed poorly during the past year," he said. "But I don't share the view that funds have been the reason why we've lost money. Sometimes clients mistakenly believe that mutual funds operate in a vacuum. But our clients understand that mutual funds are not to blame for what's happening in the market."