The appeal of mutual funds is that they offer professional management, growth, and diversification in one convenient package. The idea was to organize the savings of many small investors in order to buy a diversified portfolio of investments. This was suppose to give the small investor the same access to the stock market which was previously reserved for the very rich. Most clients view mutual funds as an investment. Money managers see them as a consumer product. The inventors are the manufacturers that recruit the retailers that sell these funds to the buying public. Some funds do well and some don't.
The big fund companies place the entire risk onto the backs of the public and simply take a cut of the action. It becomes less about managing investments and more about selling products. Previous generations knew exactly what would be earned from their investments because they would simply purchase good old reliable Canada Savings Bonds. There was little to no chance of losing even a penny of the principle. For the few that did own mutual funds, the expectation was that you would share in the growth of the economy over the long-term. The short-term didn't exist because daily results on returns were never published. You weren't going to switch to the latest hot fund because there simply wasn't one.
"The knowledge level of the people who are consuming the industry's product is so low. And that lack of knowledge gives the industry an ability to do things that aren't good for consumers. If there's a fee that you can burry somewhere, whether it's a bank or a mutual fund company or an insurance company, they'll do it."
Gloriane Stromberg, a former member of the Ontario Securities Commission openly criticizes the industry for exploiting ignorant investors.
Daniel Stoffman is an award-winning journalist. He writes on such topics as business, politics and social issues and co-authored the bestseller, "Boom Bust & Echo".