The blurring of the old line between direct-sold and advisor-sold mutual funds is nearly complete. By Morningstar's reckoning, only two open-end, non-institutional, purely-direct mutual funds (besides new funds) still exist.

Over the weekend Lewis Braham of Barron's profiled the Disciplined Growth Investors Fund, one of those two lone purely-direct-sold mutual funds. (The other is the Bruce Fund.) The piece uses that fund's strong performance as an example of the conclusions of a recent study, "Mutual Fund Performance and the Incentive to Generate Alpha", which found a 112 basis-point performance gap between direct-sold and advisor-sold funds, at least from 1999-2004.

Yet Barron's and one of the study's authors both note that much has changed in mutual fund distribution in the past 11 years. The study's authors wonder if advisors have less incentive to seek alpha than direct-sold mutual fund investors do, while the publication also points out the rising cost of mutual fund supermarkets like Fidelity and Schwab. And fees, as fundsters know, eat into returns.

These days, direct-sold fund shops like T. Rowe Price have advisor-sold share classes, too, and advisor-sold funds can be purchased directly. The Barron's piece makes for an interesting case-in-point on the blurring of the lines. 

Edited by: Neil Anderson, Managing Editor


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