Citigroup's divestment of its mutual fund business

by: David Jackson

So Citigroup has decided to sell its asset management business to Legg Mason, and will purchase Legg Mason's brokerage business. Citigroup seems to be the only large brokerage firm that gets it. It understands that you can claim your brokers are objective, and at the same time own in-house mutual funds that mean its more profitable for your brokers to push your own funds. I wrote about this problem in The Radical Guide to Investing, and pointed out that many wealthy investors think they're getting great treatment, whereas in fact they're being sold poorly performing in-house funds by brokerages.

What does this mean for ETFs and ETF investors?

It's great news. Once brokers become truly independent (that will also require the elimination of incentives for pushing one family of funds over another), they'll stop selling underperforming mutual funds. And what will they choose instead? ETFs. Because ETFs have low expense ratio, outperform actively managed funds, and can be purchased in any brokerage account (unlike Vanguard index funds).

All of which is good for ETF investors. More money flowing into ETFs means greater liquidity and narrower spreads; and if you short ETFs, greater availability.

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