Sunday, January 23, 2005

Other Thoughts

A couple of decent articles this morning compliments of Ted "the linkster" over at Fundalarm. The team of Evensky and Katz publish another book and write about core-satellite portfolio design. Diane Berthels has it exactly correct in her article on 401(K) fiduciaries and mutual funds. The proliferation of share classes has made it a chore for people in the business and very difficult for people outside to understand what the fund alternatives are. Her PIMCO example is classic. The large majority of participants and plan sponsors never go beneath the covers to figure out which class they own and as Diane points out, the expense structure makes all the difference in whether positive alpha falls out into the account.

Agency issues and conflicts of interest are as natural to pension plan dynamics as they are on the used car lot plan sponsors would seem to negotiate harder for a $5000 car than for investments and services related to a $100,000,000 pool of assets. I think limitations on knowledge of the issues and time to educate and explore alternatives underlie this paradox......and believe me..the industry takes full advantage of these limitations to reward themselves and their shareholders.

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