Thursday, November 25, 2021

Proprietary investment funds and financial well-being


A proprietary fund is a fund where the sale and manufacture of the fund are part of the same corporate entity. The obvious advantage of this arrangement is the company makes profit on managing the fund AND on selling it.

If the salesperson does not offer a variety of competitive funds to you, it reduces your choices and could mean you are not being offered the best funds for your needs. “Best “includes such characteristics as risk, cost and performance.

Sometimes Reps selling prop funds are rewarded more for selling these funds instead of better, more competitive funds. Over time, this skewed advice can materially impact your returns and retirement income security.

Another issue with proprietary funds is transferability between dealers. In some cases, it may mean you will have to sell the fund because it cannot be transferred “in kind”. This could trigger unwanted capital gains tax exposure or sale at an inopportune time.

Be aware too that bank-owned discount brokers may not offer competing funds so you may need to shop around.

Some prop funds can be out- performers of course, just be sure you understand the potential downside of dealing with a Firm that only sells proprietary funds.

Professional financial advisors would not normally put themselves in such a conflicted position. It should be noted though, that securities laws do not prohibit Firms from restricting their product shelf to proprietary funds.  In fact, most bank branches only offer their own proprietary mutual funds.


Caveat Emptor. Control your own financial destiny or someone else will.