Stop the Mutual Fund Merry-Go-Round?

Photo: Wikimedia Commons

Once upon a time, a Merrill Lynch broker made a pitch for the company 401(k) plan. Could we see the prospectuses for the proprietary funds he proposed to use? Of course, he said.

Did we ever see a prospectus? Of course not.

In theory, regulations required that an investor receive a prospectus before purchasing fund shares. In practice, brokers selling high-expense, low-performing funds could not comply. They were schooled to use Plan B: Make the sale first, deliver the prospectus later.

That memory cropped up as I read David Swensen's tirade against The Mutual Fund Merry-Go-Round.  Yes, "investors should take control of their financial destinies, educate themselves, avoid sales pitches and invest in a well-diversified portfolio of low-cost index funds." But asking fund salespeople to hand out more informative prospectuses, offer index-fund alternatives and generally act like fiduciaries? I fear that's still not practical.