One-Man Think Tank: A method for analyzing and comparing the costs and fees for mutual funds and ETFs

This is a very good article, thank you. I am a person that wishes to enter this profession. This article leaves me with 2 thoughts.

#1 – Print and keep with me to reference during client meetings. Pointing out the experts at the SEC and previous Academic studies conclude “total fees and costs” is boiled down to a due diligence estimation. Then establish with my potential client my method of estimating and rounding-up.

#2 – It is scary to think, some 47-60 years ago, the fiduciary duties established in 1940 plus the 1963 decision have not taken root within the financial investment industries that provide the backbone to our US well-being.

Question: You mention “Screens can be utilized”. With 600+ fund sponsors and 9000+ funds, is it appropriate to build your recommended Funds via a one-time research or a Fund Sponsor/Individual Fund which was “screened-out” last year due to high fees is likely to be favorable now?

Thank you,
Sandy Rees

Sandy,

Thanks for the kind words.

Our annual investment research always begins with a “top-down” analysis of our investment strategy. What academic research has been issued which provides ingisthts, for example. And what new investment strategies are receiving academic attention? Perhaps I’ll touch on this in a later article.

As to investment product research, we re-run our screens, from the inception, each year, precisely because fees and costs change in funds over time, and because new funds and ETFs enter the market constantly.

For U.S. stock funds, our screens lead us to about 200 funds worthy of a second look. Perusing this list, and reviewing summary information on the funds then leads us quickly down to 80-100 funds and ETFs, which then receive our closest scrutiny.

For funds that meet our criteria and are selected for use, we review, on an ongoing basis, the fund literature as it is produced. Additionally, Google news alerts are used to feed us news articles that might touch upon the fund, or fund family. We then re-visit our fund choices annually. However, on occassion we will add another fund to our “approved” list in-between annual reviews.

Having said all that, our list of approved funds does not change very often. We have about 40 approved U.S. stock funds and ETFs, up from about 30 funds about 8 years ago. Very few funds have “dropped off” the list, although it can and does occur occassionally.

Hope this helps.

Ron

Ron you are 100 percent correct that “plan sponsors should, in my view, only engage only those retirement plan consultants who are willing to accept full fiduciary status”. As a sponsor myself I have not only hired a 3(38) investment manager but the firm is a DALBAR Certified ERISA 3(38) Adviser. I want a third party to do the due diligence on the manager.