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Index fund flows and fund distribution channels

Author

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  • Ricardo Barahona

    (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.

Suggested Citation

  • Ricardo Barahona, 2025. "Index fund flows and fund distribution channels," Working Papers 2518, Banco de España.
    • Handle: RePEc:bde:wpaper:2518
    DOI: https://doi.org/10.53479/39443
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    References listed on IDEAS

    as
    1. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R., 2007. "Participant reaction and the performance of funds offered by 401(k) plans," Journal of Financial Intermediation, Elsevier, vol. 16(2), pages 249-271, April.
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    3. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45.
    4. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R., 2006. "The adequacy of investment choices offered by 401(k) plans," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1299-1314, August.
    5. Michael J. Cooper & Huseyin Gulen & P. Raghavendra Rau, 2005. "Changing Names with Style: Mutual Fund Name Changes and Their Effects on Fund Flows," Journal of Finance, American Finance Association, vol. 60(6), pages 2825-2858, December.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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