From one way of looking at it, it's taken the mutual fund industry six decades to get back to where it used to be, at least in terms of shareholder friendliness. Of course, the industry's a lot bigger now, too, and one of its most critical distribution channels didn't even exist 60 years ago.

In his latest "Rekenthaler Report" column, Morningstar guru John Rekenthaler ponders the history of mutual funds in the U.S. since the 1950s. He looks back fondly on those early days, when expense ratios were lower and didn't include distribution, and had a "get rich slowly" mindset when it came to investment strategies and stewardship.

"The choices were limited but solid," Rekenthaler writes.

Rekenthaler bemoans the high-flying mutual fund industry of the 1980s, when investors chased high returns (ok, so they still do that today) and distribution fees got baked into all sorts of funds. Though he doesn't mention it here, the 1980s is also when 401(k) plans exploded onto the scene, later coming to be a huge source of mutual fund inflows and transforming Fidelity into a titan.

In Rekenthaler's eyes, investors have driven the industry back to some of those 1950s fund industry values, by pouring money into lower cost funds, both indexed and active. The shift also comes perhaps from the shift in the financial advice world, with the collapsing together of different distribution channels and the professionalization of FAs. The 401(k) world, too, is maturing and professionalizing, and funds without strong stewardship tend not to thrive there.

Try playing devil's advocate for a moment, though. Sure, the 1950s fund industry may have been simpler and more stewardship focused than the industry later became, but it was also much smaller. Thanks to 401(k) plans, and perhaps even to 12b-1s and other distribution expenses, many more Americans today gain the diversification and sophistication benefits of being invested in mutual funds. Perhaps the 1980s was a kind of growing pains, necessary to catapult the industry to the reach and scale it has today. 

Edited by: Neil Anderson, Managing Editor


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