Watch out for silent partners when using active funds

Posted by TEBI on May 24, 2024

Watch out for silent partners when using active funds





If you’re like most people, you probably don’t look in detail at your cell phone bill. But, if you did, you might be surprised at all of the different items it includes.

The biggest cost is the monthly plan charge, which likely includes a certain amount of minutes, text messages, and data. But there will be several other costs as well, such as data coverage charges, roaming charges, taxes, carrier fees, and charges for add-on services like insurance or premium voicemail.

Investment costs are very similar. People tend to focus on the headline charge, the fund management fee, which is typically expressed as a percentage of the assets managed. But there are, in fact, a whole range of additional costs that investors incur. And, unlike cell phone customers, investors are very rarely, if ever, presented with an actual bill that breaks everything down.

In his book Index Funds: The 12-Step Recovery Program for Active Investors, Mark Hebner provides a list of what he calls “silent partners” investors pay money to. These include stockbrokers, investment advisors, accountants, market makers, transfer agents, mutual fund distributors, and income tax agencies.

“Your investment portfolio is vulnerable to these silent partners,” writes Hebner. “Ideally, a silent partner would provide some sort of benefit, but in the case of your investments, these silent partners add little value.”



This article is based on the book Index Funds: The 12-Step Program for Active Investors. The issues it raises are addressed in Step 7:





Here are some other recent posts you may have missed:

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The fundamental flaw of active ETFs



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