Touché, Burton Malkiel, touché! But also, wrong! At least, partly.

Famed funds columnist Chuck Jaffe responds to Malkiel's op-ed in the Wall Street Journal, "You're Paying Too Much for Investment Help."

It's true that investors are overcharging customers for active management, Jaffe says, but adds that that's nothing new, and suggests that Malkiel isn't taking into account today's investment world–one that has greatly changed over the past 15 years.

How mutual funds compensate its advisors works differently nowadays, argues Jaffe, pointing out that front-end loans are no longer the norm.

Today, plenty of advisers get compensated in an ongoing fashion, through 12b-1 fees, which affects the average expense ratio and makes it look like costs have not come down, when in fact, the operating savings behind funds have likely been passed to investors, but have been outstripped by the additional charges of paying for advice, Jaffe reasons.

He adds that paying for assistance can make sense and be an effective tool, if the investor is getting what they pay for–something that requires research, strategy, and an in-depth look at all of the expenses they are paying.

For more on Jaffe's retort, read the full story here, and for a more comprehensive look at Malkiel's view on the matter, with charts and graphs, you can find his original piece (from which the Wall Street Journal piece was extracted), which was published in the academic paper, Journal of Economic Perspectives, here.  

Edited by: Nicole Spector


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