Fiduciary churn

Ouch! Research by finance professor Scott Stewart finds that the decisions made by plan sponsors on behalf of pensions, endowments, and foundations have persistently negative economic value.  

Using the most conservative approach for interpreting his results, Stewart concluded that plan sponsors had collectively squandered $170 billion in value over the two-plus decades he studied… 

“Plan sponsors never make their money back,” Stewart told me. “If they simply went on vacation, they could save their clients $170 billion – and that doesn’t count transaction costs.” 

The good news for plan sponsors? They’re less bad than most:

Plan sponsors are, of course, not unique in their ability to destroy value in this manner. Numerous studies, including those by Dalbar and Morningstar, have documented that individual investors, for example, buy mutual funds more heavily at the market peak and tend to sell them at the market bottom.  Plan sponsors should be more sophisticated than individual investors and, according to Stewart, they are. “Although they behave like retail investors,” he said, “the amount of value they destroy is a fraction of that destroyed by individuals.”

URLs:  

http://www.advisorperspectives.com/newsletters10/pdfs/How_to_Squander_$170_Billion.pdf