There is a new Taylor Frigon commentary available which ties together arguments we have made previously about the detrimental effects of the rise of a class of financial intermediaries between the investor and the money manager.
In the diagram above, the investor (A) can be an institutional investor or an individual investor. He typically focuses on the performance record of the money manager (C), which can take the form of a mutual fund, a separately managed account, a closed-end fund, or many other vehicles.
Very few people realize that the performance experienced by the investor (A) can be very different from the manager (C) due to the timing and behavior of the investor in putting funds into C and taking them back out of C. Measuring the performance of A is much more difficult than measuring C, but studies such as the Dalbar Quantitative Analysis of Investor Behavior (QAIB) have done so for years and shown that the performance of A has been terrible.
Lost in this analysis has been the fact that the intermediary (B) may well be contributing to the problems of the investor (A). These intermediaries are often called "financial advisors" or "financial planners" in the individual sector and "investment management consultants" in the institutional sector. They are not money managers (C), and their track records are generally not easy to examine, as are the records of the managers.
Click here to read "The Intermediary Trap."
To read our previous blog posts on the subject, click here(1) and here(2) and here(3) and here(4).
For later blog posts dealing with the same topic, see also:
- "The Intermediary Trap and the Current Bear Market" 11/03/2008.
- "The Bonfire of the Intermediaries" 01/29/2009.
- "Investor Behavior or Advisor Behavior -- 2009" 06/26/2009.
- "Some lessons from 2009" 12/28/2009.
- "March 9 anniversary" 03/09/2010.
- "Investors fleeing equity funds for bond funds" 08/25/2010.
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