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Fund Spy

Where Are the Liquid Alternative Shareholders’ Yachts?

Since March 2009, investors have collectively paid $1 billion more in fees to liquid alternative mutual funds than what they’ve gained in return.


There’s an old joke about the economic imbalance between firms that provide financial services and their investors. Upon seeing the fleet of bankers’ and brokers’ boats in New York Harbor, a Wall Street tourist asks, “Where are all the customer’s yachts?” Of course, those didn’t exist because the benefits of offering financial services was greater than their wealth generation.

A lot has changed in financial services since Fred Schwed, a former broker, first popularized this joke in 1940, and most of these changes have been in investors’ favor. The SEC abolished fixed brokerage commissions in 1975, opening the way for the arrival of discount brokers. Leaving investment advice to their full-service counterparts, they started a trend of lowering trading costs to now a fraction of their pre-1975 levels, where they exist at all anymore. Investment shops’ management fees have also come down considerably as index funds have enabled buy-and-hold investors to essentially match the market for what would have been regarded as a pittance when Jack Bogle pioneered the first retail version, beginning in 1975 as well.

Jason Kephart does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.