A controversial new study has found that funds recommended by professional consultants show no signs of higher returns. In fact, non-recommended funds generally out-perform those backed by ‘expert’ opinion, albeit marginally.
Using data from that accounts for 91% of the US investment consultancy market over the last thirteen years, the study has found that recommended products show no higher return than those that are not recommended. This means that when the cost of using these consultancy services is taken into account institutional investors are making a net loss.
With 82% of the US market using these consultants, there is a large industry of advisors whose professional advice has absolutely no effect on output. The study found that advisors were more likely to recommend investments based on soft factors than on the fund’s previous performance, and that consultants tend to prefer backing large funds. Subsequently, advisers often gave the same advice to all of their clients in order to better control their own work load.
The study also suggested that investors found the advice ‘comforting’ and helped them explain their decisions to stakeholders. As of June 2011, just over half of the 25 trillion dollars of global institutional investment were advised on by investment consultants.
