Lynn O'Shaughnessy

The brokers' sins transcended their lousy fund picks. The professors examined whether brokers and other commissioned professionals provided superior advice on asset allocation. That is, what mix of stock and bond funds were these guys recommending to their clients?

They also looked at whether brokers were effective in taming investors' desire to chase after the hottest funds. Investors routinely sabotage their portfolios by loading up on the previous year's breakout fund performers. They also love to jump in and out of the market after listening to the lame predictions of financial talking heads or perhaps after consulting a Ouija board or tea leaves. Investors would be so much better off if they ignored prognosticators and simply divided their portfolios among different asset classes, such as large and small stock funds here and overseas, as well as bonds.

The evidence from the study, however, showed that brokers weren't successful in keeping investors from running after the hot money. Equally important, they didn't provide wise advice on how investors should spread money inside their portfolios.

"On average," says John M.R. Chalmers, study co-author and professor at the University of Oregon, "brokers aren't picking better funds and they aren't helping you have a better asset allocation."

So what are these professionals doing to justify their commissions? Actually, the researchers documented that they are putting their clients into more expensive funds, even if you disregard the cost of the commissions.

I can only imagine what the brokerage industry thinks about the research, which one consultant has dubbed the "study of the decade," because they aren't talking. When I contacted several of the nation's major brokerage firms for a story in a professional publication, the press handlers couldn't produce anyone willing to be interviewed.

You can download your own copy of the study, "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry," by Googling the title. If you read the lengthy report, you might well come to this conclusion: If you want to pay high fees for underperforming mutual funds, look for someone who will charge you a commission. If that sounds ludicrous, you should look elsewhere.

Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

Be the first to read Lynn O'Shaughnessy's column. Sign up today and receive delivered each morning to your inbox.