Index fund flows and fund distribution channels

Ricardo Barahona
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Ricardo Barahona: BANCO DE ESPAÑA

No 2518, Working Papers from Banco de España

Abstract: In the United States, investors leave large amounts of money on the table when investing in index funds. I show that even though high fees strongly predict poor performance, investors have little sensitivity to fees. This can be explained by fund intermediation in the retail sector and the legal standard of care that intermediaries have towards their clients. Net inflows to high-fee funds are higher when brokers and financial advisors receive sales commissions from the investment management company. When funds are sold through intermediaries held to higher standard of care, such as those sold to employer sponsored defined contribution pension plans, this is no longer the case. Together, this evidence suggests imposing fiduciary duties on fund intermediaries improves investor welfare.

Keywords: index funds; mutual funds; defined contribution (search for similar items in EconPapers)
JEL-codes: G23 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2025-04
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2518

DOI: 10.53479/39443

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