Why do you keep seeing the same five funds?
Every proposal. Every “personalized” plan. The same familiar fund families, over and over. That lineup wasn’t picked for you. Part of it was paid for.
Consumer education, not investment advice. Paul Powell is not currently a licensed financial advisor.
Fund companies commonly pay broker-dealers for placement — a practice the industry calls revenue sharing. Funds that pay land on the firm’s “preferred” shelf, and the preferred shelf is what your advisor’s tools put in front of you. The lineup in your proposal is, in part, a bought lineup.
The shelf is for rent
Walk into a grocery store and the products at eye level didn’t get there by being the best. The manufacturers paid for that shelf. It’s called a slotting fee, and everyone in the grocery business considers it normal.
The fund business runs the same way. Fund families commonly pay broker-dealers for access — payments the industry calls revenue sharing, shelf space, or “marketing support.” The structures vary: sometimes a share of the assets their funds gather at the firm, sometimes flat annual payments, sometimes both. In return, the fund family lands on the firm’s preferred list — and often gets its wholesalers in front of the firm’s advisors, its logo at the firm’s conferences, its funds baked into the firm’s model portfolios.
Here’s the part most people miss: your advisor may never see a dime of this directly. The money moves firm to firm, above their head. But the approved list they work from, the software that builds your proposal, the model portfolios they’re encouraged to use — all of it tilts toward the families that paid. The advisor picks from a menu. The menu was sold.
So when the same five fund families show up in every proposal you’ve ever been handed — at this firm and the last one — that’s not a coincidence, and it’s not a consensus about quality. It’s distribution. The biggest payers get the widest shelf.
And the research is blunt about what should drive fund selection instead: Morningstar’s own analysts have found that the expense ratio is the single best predictor of a fund’s future returns. Cheapness predicts. Shelf placement doesn’t.
Completely. That’s the point.
Revenue sharing is legal when it’s disclosed — and it is disclosed, in regulatory filings and website fine print written for lawyers, not for you. This site doesn’t cover crooks; the justice system handles those. It covers the ordinary, structural, perfectly legal mechanics that quietly shape what gets recommended to you — because those are the ones you’ll actually encounter.
A fund didn’t have to be the best to reach your proposal. It had to pay. Flip that around and it gets sharper: think about the funds that didn’t pay. Some of the cheapest, best-run funds in the world do little or no revenue sharing — and they’re strangely scarce on preferred shelves. Their absence from your proposal isn’t a verdict on their quality. It’s a verdict on their marketing budget.
Make them show you the shelf
You can’t stop firms from renting shelf space. You can refuse to shop the shelf blind. The pension plans I sat across from for twenty years never accepted a manager list at face value — the first question was always who’s paying to be on this list. You’re entitled to the same answer.
Start with the paper trail: the firm’s revenue-sharing disclosure is public, and an advisory firm’s Form ADV describes its conflicts in writing. Pulling those records takes about ten minutes. Then put the question directly to the advisor as part of your written due-diligence questions — before you accept any proposal built from their menu.
“Does your firm receive revenue-sharing, shelf-space, or marketing-support payments from any of the fund families in this proposal? Please list which ones, and tell me whether any fund you’re recommending would not be available to me at a lower cost elsewhere.”
If the answer changes which funds show up in your next proposal — what does that tell you about the first one?
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