A Warning to Anyone Who Bought a Fund From Their Bank: What Your “Relationship Manager” Never Told You
It usually happens on an ordinary weekday.
You walk into the bank to renew a fixed deposit. Before you reach the counter, a friendly, well-dressed person greets you by name, offers you a seat in a quiet room, and slides a glossy brochure across the desk.
"Your money is just sitting there, earning almost nothing," they say. "Let me show you something better."
Twenty minutes later you have signed. You trusted them. They work at your bank, after all.
So here is the plain answer to the question in the title. Should you buy mutual funds from your bank? For most people, no. A bank-sold fund usually costs far more than a low-cost index fund you can buy yourself, the person selling it is often paid on what they sell, and research shows most actively managed funds trail their index over the long run. There are exceptions, and you will find them below.
The Short Answer Usually no. Most funds sold at bank branches carry an upfront sales charge (up to 5.5% in Malaysia, up to 8.5% under US rules) plus a yearly fee of around 1.5% to 1.85%. Over 20 years, those costs can swallow a third of what your money could have grown to. A low-cost index fund or ETF bought through an online broker usually leaves far more in your pocket. Buy from your bank only if the fund is genuinely low-cost and you understand every fee in writing. |
If you already own a bank fund, please don't panic and don't sell anything tonight. Read to the end. There is a calm, step-by-step plan for you near the bottom of this page.
In this article
The Barclays Story: 12,331 Customers and a "Balanced" Fund
In January 2011, Britain's financial regulator, the Financial Services Authority (FSA), fined Barclays £7.7 million. At the time it was the biggest fine the FSA had ever handed out for failings in selling to ordinary retail customers.
The reason was not some exotic derivative. It was two plain-sounding funds.
Between July 2006 and November 2008, Barclays advisers sold Aviva's Global Balanced Income Fund and Global Cautious Income Fund to 12,331 customers, who put in a total of £692 million. Many of them were close to retirement.
The names sounded safe. "Cautious." "Balanced." But the regulator found that Barclays had not made sure the funds suited the people buying them, and that its training and sales material did not explain the risks properly. Barclays' own review flagged 51% of the Cautious Fund sales and 74% of the Balanced Fund sales as needing a closer look.
The BBC spoke to one customer. She had asked for a "cautious-to-medium" risk investment. Barclays advised her to put £50,000 into the Balanced Fund. Within months, she had lost £17,000. (She was later compensated in full.)
Barclays had spotted signs of unsuitable sales as early as June 2008, the FSA said, but did not act quickly enough. By the end, the bank had paid around £17 million in compensation, and the regulator estimated up to £42 million more could follow.
What This Story Teaches A fund's name tells you nothing about its risk or its cost. "Cautious," "Balanced," "Income" and "Protected" are marketing words. Only the fund's fact sheet and prospectus tell you what you are really buying, and what it really costs. |
Barclays is not unusual. It is simply one of the few cases where a regulator wrote everything down. To understand why this keeps happening, you need to understand one thing about the person across the desk.
Who Your Relationship Manager Really Works For
Your relationship manager may be kind, honest and hard-working. Most are. But they are employed by the bank, not by you, and the bank earns money every time you buy.
Here is how that money usually flows:
The sales charge. When you buy a typical bank-sold fund, a slice of your money (often 3% to 5.5% in Malaysia) is taken off the top before a single cent is invested. That slice pays for distribution, which means the bank and the people selling the product.
The yearly fee. Every year, the fund charges a management fee, often 1.5% to 1.85% of your balance in Malaysia. Part of that can flow back to the seller as an ongoing payment for as long as you stay invested.
Sales targets. Branch staff in many countries have historically been measured, ranked and paid partly on how much they sell.
None of this means your relationship manager is a crook. MIT finance professor Antoinette Schoar, who has studied financial advice for years, put it simply: "It is not that brokers are malicious." They are paid to sell, so they sell what pays.
Even regulators admit the problem is built into the system. In Singapore, the Monetary Authority of Singapore (MAS) now requires financial advisers to use a "Balanced Scorecard" framework, under which a representative's variable pay can be clawed back if their recommendations turn out to be unsuitable or their disclosures misleading. Rules like that exist because sales-based pay, left alone, pushes advice in the wrong direction.
The mystery-shopper experiment
In 2012, economists Sendhil Mullainathan (Harvard), Markus Noeth (University of Hamburg) and Antoinette Schoar (MIT) ran a clever test. They sent trained "mystery shoppers" posing as ordinary investors to financial advisers at banks, brokerages and advisory firms in the Boston area.
Some shoppers walked in already holding a sensible, diversified, low-fee index fund portfolio. That is close to the textbook-perfect answer.
What did many advisers do? They praised the portfolio and then tried to change it. In nearly half the visits, the adviser encouraged buying an actively managed fund. Only about 7.5% encouraged an index fund. The researchers found that advisers pushed clients towards higher-fee active funds even when the client started with a well-diversified, low-fee portfolio.
Read that twice. Even when you walk in doing the right thing, the system can nudge you towards the more expensive thing.
The 6 Things Your Relationship Manager Never Told You
No. 1: The sales charge comes out of your money on day one
If you invest RM100,000 in a fund with a 5.5% sales charge, about RM5,500 disappears the moment you sign. Your money starts the race already behind.
This is not a rumour. Fund documents in Malaysia openly state a sales charge of "up to 5.50%" of the net asset value per unit for many equity funds, often followed by a line saying you may negotiate for a lower charge. Most people never know they can ask.
In the United States, FINRA's rules cap mutual fund sales loads at 8.5% of the purchase, and lower if the fund charges other fees. In the UAE, a columnist for The National described banks charging commissions of up to 5% to get into a mutual fund and a similar amount to get out.
Compare that with Malaysia's own EPF i-Invest platform, where the EPF caps the sales charge at 0.5%. When it launched in 2019, the EPF itself pointed out that offline purchases through intermediaries could cost up to 3% for EPF money. Same type of fund, very different price, depending on the door you walk through.
No. 2: The yearly fee never stops
The sales charge hurts once. The yearly fee hurts every single year, on a bigger and bigger balance.
A typical Malaysian equity unit trust lists an annual management fee of up to 1.5% to 1.85% of the fund's value, plus a small trustee fee. Meanwhile, according to the Investment Company Institute, the average expense ratio paid by investors in index equity ETFs was 0.14% in 2025, and the very cheapest broad index funds charge only a few hundredths of a percent.
A difference of 1.5% a year sounds tiny. It is not. I showed in The "Tiny" 1% Fee That Can Quietly Steal a Quarter of Your Retirement how even a single percentage point, compounded for decades, can take a huge bite out of your retirement. A 1.5% to 1.8% gap takes an even bigger bite.
No. 3: Most active funds lose to a simple index fund
The whole sales pitch for an actively managed fund is this: "Our expert managers will beat the market for you."
The evidence says most don't. S&P Dow Jones Indices publishes the SPIVA Scorecard, the most closely watched scorecard of active fund performance. Its year-end 2025 report found that 78.78% of actively managed US large-cap funds trailed the S&P 500 in 2025. Over 15 years, 89.93% trailed it. Over 20 years, 92.89% did.
Worse still, only 36.53% of US domestic equity funds that existed 20 years ago were still alive at the end of the period. The rest had been closed or merged away, often quietly, after poor results.
The pattern is similar around the world. If you want the long version, read Stock Picking vs. the S&P 500: What 20 Years of Results Say About Who Actually Wins or the story of how a boring index fund beat Wall Street's highest-paid money managers in Warren Buffett's $1 million bet.
No. 4: Fees are the best predictor of future returns
Your relationship manager will show you a chart of last year's performance. That chart is the least reliable number on the page.
Morningstar, the world's best-known fund research firm, tested what actually predicts a fund's future success. Its 2016 study, led by Russel Kinnel, grouped funds into five buckets by cost. Among US stock funds, 62% of the cheapest group survived and beat their peers over the following five years. Only 20% of the most expensive group did. Morningstar concluded that the expense ratio is the most proven predictor of future fund returns.
In plain words: if you want to pick funds that do well, start by picking cheap ones. Bank-sold funds are rarely the cheap ones.
No. 5: The bank may prefer its "own" funds
Some banks own fund management companies, or earn extra payments from certain fund houses. That creates a temptation to steer you towards those funds, even when cheaper ones exist.
This is not a theory. In December 2015, the US Securities and Exchange Commission (SEC) announced that two J.P. Morgan wealth management subsidiaries would pay $267 million and admit wrongdoing for failing to tell clients that the firm preferred to invest them in its own proprietary products. One of the programmes involved was sold through Chase Bank branches. Some clients were also put into a more expensive share class of the firm's own mutual funds when a cheaper one was available. A parallel case added a $40 million penalty from the US Commodity Futures Trading Commission.
In March 2019, the SEC announced that 79 investment advisory firms would return more than $125 million to clients, mostly ordinary retail investors. Their offence? Putting clients into higher-cost mutual fund share classes that paid ongoing "12b-1" fees, when cheaper share classes of the very same funds were available, without properly disclosing it. The list included firms tied to Wells Fargo and Deutsche Bank.
Same fund. Same manager. Same investments. Higher price. And the client was not told.
No. 6: It is NOT protected like your savings account
This one surprises many people over 50, because the fund was sold inside a bank, by bank staff, often in the same building as their deposits.
In Malaysia, PIDM (the deposit insurance agency) protects eligible deposits up to RM250,000 per depositor per member bank. But its own FAQ states clearly that unit trusts, stocks and shares are not protected. In the US, the Massachusetts Securities Division warns that no mutual funds are insured by the FDIC and that your bank is not obliged to cover losses on a fund you bought there.
That does not make funds "unsafe" (a well-run index fund holds real shares in real companies, as I explain in Is Your Money Safe in an Index Fund?). It means the price can fall, and nobody will make you whole if it does. Many people don't realise that until the first big drop.
The Math: RM100,000 Over 20 Years
Let me show you what all of this means in real money. These numbers work exactly the same in dollars, pounds or any other currency.
Two people each invest 100,000 on the same day and never add another cent.
Person A buys a typical bank-sold equity fund: a 5.5% sales charge, plus about 1.85% a year in ongoing fees.
Person B buys a low-cost index ETF through an online broker: no sales charge, and about 0.2% a year in total costs.
To be generous to the bank fund, let's assume both investments earn exactly the same 7% a year before fees. (In real life, as SPIVA shows, most active funds don't even match their index before fees are taken into account.)
After | Bank-sold fund (Person A) | Low-cost index ETF (Person B) | Difference |
Day 1 | 94,500 | 100,000 | 5,500 |
10 years | 154,231 | 192,816 | 38,585 |
20 years | 251,718 | 371,780 | 120,062 |
30 years | 410,823 | 716,852 | 306,029 |
After 20 years, Person B has about 120,000 more, from the same starting sum, in the same market, taking the same risk. After 30 years, the gap is over 300,000. Person A's bank fund has quietly eaten about a third of what their money could have become.
That gap is the real price of the friendly chat in the quiet room. Nobody shows you this table before you sign.
How These Numbers Were Calculated Both investments are assumed to earn 7% a year before costs. Yearly costs are deducted from the balance each year (1.85% for the bank-sold fund, 0.2% for the index ETF). The bank fund also pays a 5.5% sales charge on day one. Taxes, exit charges and currency moves are ignored. These are illustrations, not forecasts. Real returns will be different, but the effect of costs works the same way. |
What the Research Says About Bank- and Broker-Sold Funds
You might wonder: maybe bank-sold funds cost more because they are better? Maybe you get something extra for your money?
Researchers have checked.
In a study published in the Review of Financial Studies in 2009, Daniel Bergstresser (then at Harvard), John Chalmers (University of Oregon) and Peter Tufano (Harvard) compared funds sold through brokers and other intermediaries with funds that investors bought directly, from 1996 to 2004. The broker-sold funds delivered lower risk-adjusted returns, even before subtracting the distribution costs investors paid. In other words, the extra fees did not buy better performance.
A later study by Diane Del Guercio and Jonathan Reuter, published in the Journal of Finance in 2014, found that actively managed funds sold through brokers underperformed both broker-sold index funds and directly sold active funds by about 1.10% a year on a risk-adjusted basis.
Put these studies together with SPIVA and Morningstar, and the picture is consistent across decades and continents. Paying more for a fund sold across a desk does not, on average, get you better results. It usually gets you worse ones.
Other Countries Have Already Admitted the Problem
Regulators around the world have seen what happens when investment products are sold on commission. Here is what some of them did.
Country | What happened | What it tells you |
United Kingdom | The Retail Distribution Review banned commission on retail investment advice from the end of 2012. Several banks, including Barclays and HSBC, cut back their in-branch advice teams around that time. | When banks could no longer earn commission, many stopped "advising" ordinary customers. |
Australia | After the Hayne Royal Commission, six major banks and financial firms paid or offered about A$4.7 billion in compensation, mostly for charging advice fees for services customers never received. | Fees can keep flowing long after any real service stops. |
Singapore | MAS introduced the Balanced Scorecard framework in 2016, linking advisers' variable pay to the quality of their advice, with clawbacks for unsuitable sales. | The regulator accepted that pay based mainly on sales distorts advice. |
Hong Kong | Thousands of mostly retail investors bought Lehman Brothers "Minibonds" through banks. In 2009, 16 distributing banks agreed to buy them back at 60% of face value (70% for investors aged 65 or over). | Something sold at a bank counter can still lose a large part of your money. |
Malaysia | EPF i-Invest caps the sales charge at 0.5%, against up to 5.5% when many funds are bought with cash through traditional channels. | The same kind of fund can cost very different amounts depending on where you buy it. |
The Hong Kong Minibonds were structured notes, not mutual funds. But the lesson is the same one Barclays' customers learned: a product feels safe because of where it is sold, not because of what it is.
When Buying a Fund From Your Bank Can Make Sense
I want to be fair. Not every bank fund is a bad deal, and not every relationship manager is pushing the wrong thing.
Buying through your bank can be reasonable when:
The fund is genuinely low-cost. Some banks now offer index funds or ETFs with small yearly fees and no sales charge. If the total yearly cost is well under 0.5% and there is no upfront charge, convenience may be worth a small premium.
It is a money market or cash-like fund you are using for short-term savings, with very low fees and no sales charge.
The sales charge is waived or negotiated down to almost zero, and the yearly fee is competitive with what you could get elsewhere.
You honestly will not invest at all otherwise. A slightly expensive fund held calmly for 20 years beats cash sitting in a current account. But a cheaper fund held calmly beats both.
What does NOT make sense is paying 5.5% upfront and 1.8% a year for a fund that, on the evidence, will probably trail a simple index fund, simply because the person selling it was friendly and the building looked solid.
If you truly want someone to guide you, consider paying an adviser directly for their time, an approach often called "fee-only" advice, so that their income does not depend on which product you buy.
10 Questions to Ask Before You Sign Anything
Print this list. Take it to your next meeting. Ask for every answer in writing, and in ringgit or dollars, not just percentages.
The Bank Fund Checklist
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A good relationship manager will answer all ten calmly. If anyone pressures you to sign today, rushes past the fees, or says "don't worry about the charges, the returns will cover them," that is your answer.
Similar warning signs apply to any product sold with a promise of safety. I covered them in Someone Just Offered You a "Guaranteed" Return. Before You Sign Anything, Read This.
A Simple Flowchart: Should You Buy This Fund From Your Bank?
Use this the next time someone slides a brochure across the desk.
Already Bought a Bank Fund? What to Do Tonight
If you are reading this with a sinking feeling because you own one of these funds, take a breath. You did what millions of sensible people do. You trusted a professional at an institution you have used for years. That is not stupidity. That is how the system was designed to work.
Now let's fix it calmly.
Find your paperwork. Dig out your latest statement, the fund's fact sheet and the product highlights sheet. If you can't find them, ask the bank to email them to you.
Write down three numbers. The sales charge you paid, the yearly fee you are paying now, and any exit charge if you sell.
Check the fund against its index. The fact sheet names a benchmark. Compare the fund's 5-year and 10-year returns with that benchmark. Be honest with yourself about what you see.
Stop adding new money first. If you have a monthly plan going into the fund, that is the easiest place to start. Redirect future savings to a low-cost index fund.
Don't sell in a panic. The sales charge you paid is gone either way. The only question that matters now is: "Is this the best place for my money from today onwards?" My article on whether to sell at a loss or wait to break even walks you through that decision without emotion.
Check exit costs and taxes before moving. Some funds charge to leave, and in some countries selling can trigger tax. Do the sums before you act.
If you move the money, decide how. You can move it all at once or in stages. I compare both in Lump Sum or Monthly? How to Put Money Back Into the Market After a Big Loss.
What to Do Tonight Spend 15 minutes finding your latest fund statement and writing down three numbers: the sales charge you paid, the yearly fee, and the exit charge. That single step puts you back in control. Everything else can wait until next week. |
The Cheaper Way Most Bank Customers Never Hear About
The alternative is not complicated, and it is not risky gambling. It is the same approach Warren Buffett and Vanguard founder Jack Bogle recommended to ordinary investors for decades: own the whole market through a low-cost index fund, and hold it for a very long time.
Here is where to start, depending on where you live:
Malaysia: Read Unit Trust vs ETF in Malaysia: The Fees Your Agent Never Showed You and How to Invest in the S&P 500 From Malaysia. If you are thinking about your EPF savings, see EPF vs the S&P 500.
Anywhere outside the US: Start with How to Invest in the S&P 500 If You Live Outside the United States and CSPX vs VOO.
Want a complete, simple plan? Read The Lazy 3-Fund Portfolio.
Prefer someone to do it for you, cheaply? Compare a robo-adviser with doing it yourself in StashAway vs Buying ETFs Yourself.
Starting again after losses? Index Funds for People Who've Been Burned and Jack Bogle's 10 Rules for Investors are good next reads.
Frequently Asked Questions
Should I buy mutual funds from my bank?
Usually not, unless the fund is genuinely low-cost. Most bank-sold funds charge an upfront sales charge (often 3% to 5.5% in Malaysia) plus around 1.5% to 1.85% a year. A low-cost index fund or ETF bought through an online broker typically costs a fraction of that and, on the evidence, tends to do better over the long run.
Do bank relationship managers earn commission on funds?
Often, yes. In many countries the sales charge and part of the yearly fee pay the bank for distributing the fund, and staff are frequently measured on sales. Singapore and the UK changed their rules because pay tied to sales distorted advice. Always ask exactly what the bank earns if you buy.
Are mutual funds bought from a bank protected by deposit insurance?
No. Deposit insurance covers eligible deposits only. In Malaysia, PIDM states that unit trusts, stocks and shares are not protected. In the US, no mutual funds are FDIC-insured. The fund's value can fall, and the bank does not have to cover your losses.
What is a sales charge on a unit trust or mutual fund?
A sales charge (or "load") is a fee taken from your money when you buy. On a RM10,000 investment with a 5.5% sales charge, about RM550 goes to fees before anything is invested. Many fund documents say the charge can be negotiated, and some platforms charge little or nothing.
Are bank mutual funds a bad investment?
Not always, but the typical bank-sold active fund starts with a big handicap: high costs. SPIVA data shows about 90% of US large-cap active funds trailed the S&P 500 over 15 years, and Morningstar found low-cost funds are far more likely to succeed than expensive ones.
Should I sell my bank fund now?
Don't sell in a panic. First list the yearly fee, any exit charge and any tax. Compare the fund with its benchmark over 5 and 10 years. Many people start by redirecting new savings into a low-cost index fund, then decide calmly whether to move the existing balance.
Where is the cheapest place to buy funds?
Usually an online broker or low-cost platform where you buy an index ETF or index fund directly, with no sales charge and a low yearly fee. In Malaysia, EPF i-Invest caps the sales charge at 0.5% for EPF money. Always compare total costs, not just the headline fee.
The Bottom Line
Your bank is a good place to keep your savings. It is often an expensive place to invest them.
The person across the desk is usually not a villain. But the system they work in is built to sell products, and the products that pay the seller best are rarely the ones that pay you best. Barclays' customers learned that in 2008. J.P. Morgan's clients learned it in 2015. Hundreds of thousands of Australians learned it after the Royal Commission.
You don't have to learn it the hard way. Ask about every fee. Get it in writing. And remember that the simplest, cheapest option, a low-cost index fund held patiently for years, has quietly beaten most of the expensive alternatives for decades.
If you have lost money before, through a bank fund, a hot tip or a stock that collapsed, it was probably not your fault. The game was set up so that you would pay too much and know too little.
My free 38-page report, "Why You Lost Money in the Stock Market (And Why It Wasn't Your Fault)," shows you:
The hidden reasons ordinary investors lose money, even when they do "everything right"
How fees, sales pitches and your own brain quietly work against you
The simple, low-cost approach that lets you stop worrying and start rebuilding
It is free, and you can read it tonight.
About the Author
Stephen Loke has been a student of the market for more than 15 years. He is also an agritourism entrepreneur whose farm has been featured in Bloomberg News and Asahi Shimbun.
This article is general education, not personal financial advice. I am not a licensed financial adviser. Fees, rules and products differ by country and change over time, so check the latest documents for any fund before you invest, and consider speaking to a licensed, fee-only adviser about your own situation.
Sources
Financial Services Authority, Final Notice to Barclays Bank plc, 14 January 2011
The Irish Times, "Barclays hit with £7.7m fine," January 2011
BBC News, Barclays fine report, January 2011 (archived versions)
Financial Advisor magazine, "Advisors Often Work Against Clients' Interests, Study Says," 2012
Institutional Investor, "Retail Investors Often Get Biased Financial Advice, Study Finds"
Morningstar, "Fund Fees Predict Future Success or Failure," Russel Kinnel, 2016
Investment Company Institute, "Mutual Fund and ETF Fees Remained Near Historic Lows in 2025"
AHAM Asset Management, fund details page (sales charge and annual management fee disclosures)
The Edge Malaysia, "EPF members can start investing online in unit trust," 19 August 2019
The Edge Markets, "Industry players welcome EPF's i-Invest," 2019
The National (UAE), "Weigh up all the options before agreeing to invest"
Monetary Authority of Singapore, Notice FAA-N20 (Balanced Scorecard Framework)
Hong Kong Monetary Authority, "SFC, HKMA and 16 banks reach agreement on Minibonds," 22 July 2009
WealthBriefing, "Hong Kong Lehman Minibond Investors To Get 70% Money Back," 2012
Professional Adviser, "Experts challenge claim RDR will benefit tied advisers"
Oxford Faculty of Law blog, "The UK Ban on Commissions Relating to Retail Investment Advice"
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