Brokers cost you Billions

I have been reading a study by Daniel Bergstresser and Peter Tufano, both at Harvard Business School, and the University of Oregon's John Chalmers.

The reports compares the performance of mutual funds bought through a broker compared to funds bought directly. The conclusion is that, through brokers, "consumers pay extra distribution fees to buy funds with non-distribution expenses. The funds they buy under perform those in the direct channel, even before deductions of any distribution related expenses."

Statistics don't lie. The statistics say that, by using a broker, you are
1. paying higher sales fees
2. to buy funds with higher management fees
3. that get crappy returns.

The crappy returns cost investors approximately $9 billion per year, and that is not including distribution expenses.

Why is this happening?

I go to the section 9, titled "Do Brokers Merely Sell what they are Paid to Sell?

Here, the authors refer to the obvious hypothesis that "brokers may give priority to their self-interest or to the interests of the management companies whose funds they sell."

The statistical evidence indicates that higher fees paid to brokers result in higher sales for the mutual fund paying the fee. According to the report, "These results suggest that sales incentives are more effective in the broker channel, consistent with the old saw that funds are sold, not bought - and that paying a salesforce on a higher piece-rate scale may induce additional sales"

Ultimately, all the fees and commissions come from the investors. Your money.

Do you know what you are paying in fees?
Do you know how much of your money your broker is getting?