Fewer mutual fund investors want to play a lone hand


December 15, 1997|By Bill Atkinson

THE GUTSY, "do-it-yourself" mutual fund investor is in the minority, contrary to popular belief.

Only about one-third of the estimated 65 million people who invest in mutual funds do it without the aide of a professional such as a broker, money manager or financial planner, according to Strategic Insight, a New York-based mutual fund research firm.

That is still a hefty chunk of people, but it is small considering the growth of the mutual fund industry and its ubiquitous message: Any "Average Joe" can manage his portfolio through mutual funds.

The number of do-it-yourself mutual fund investors has remained relatively constant over the last 15 years despite the bull market and the billions of dollars that have poured into the funds, said Avi Nachmany, an analyst with Strategic Insight.

But he and other experts see the number of do-it-yourself mutual fund investors declining in years to come.

"For a long time, we have had, in many cases, a media message that you can do it on your own, and quote, unquote, don't think that you are stupid," Nachmany said.

"The reality is, most people are so confused and ignorant in the issues that deal with financial management. They are being tempted by the message. They will spend $2,000 to buy a high-tech fund on the way up, get discouraged, and go back to the bank."

There are other reasons mutual fund investors are seeking professional advice:

The stock market is extremely volatile and financial problems in Japan, Korea and other Asian countries have made investors nervous and uncertain about its direction.

"There is a premise that investing is easy," Nachmany said. "Right now, the premise is that investing is hard."

Selecting a mutual fund has become more confusing than ever. There are 9,143 funds.

Investors who have done well and are nearing retirement have grown nervous about managing their large nest eggs.

"It is just a natural progression," said Dennis Gallant, a consultant at Cerulli Associates Inc., a Boston-based financial services research and consulting firm. "Plus, a lot of these people [do-it-yourselfers] have done terribly on their own.

"They buy high and sell low. They look at returns touted in all of these funds and they look at what they have done, and it is disappointing."

The trend is toward using brokers, money managers or financial planners to handle investors' money and make the decisions, Gallant said.

"Some of the advice is very basic, some of it is very in-depth," he said.

If it's tricky deciding what is the best mutual fund to buy, it's also difficult to decide on an appropriate professional to manage that nest egg or college fund.

There are about 25,000 registered investment advisers and about 560,306 registered brokers.

Brokers generally charge a fee for the services they provide, such as buying and selling stocks or mutual funds.

Investment advisers, on the other hand, charge an annual fee based on the size of the account they manage.

"It is very much a 'buyer beware' process," said Tony Sagami, director of investor relations at AdvisorLink Inc., an Austin, Texas-based money manager referral service.

AdvisorLink screens 800

advisers who have been in business since 1990, which was the last poor year for the stock market.

The company looks at performance, risk management and the adviser's compliance record.

It tries to make sure the manager has matched or beaten the returns of the Standard & Poor's 500 stock index, which is an industry benchmark.

It looks at the consistency of an adviser's returns and tries to make sure he is not taking excessive risk to generate them.

"We want to make sure that they are as good quality human beings as they are money managers," Sagami said. "You would be surprised at what we find."

Of the 800 advisers screened, only seven made the recommended list. One of the seven is Gaithersburg-based Potomac Fund Management.

Sagami says there are "too many choices" among advisers and mutual funds.

Nachmany knows that only too well. He holds an MBA, graduated with honors and heads Strategic's research department. He also manages his own money.

"Frankly, I have no clue what to do," he said. "For the time being, I am trying to be a student of this process by making all of the mistakes by myself, and, believe me, I have made plenty."

Pub Date: 12/15/97

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