Nonproprietary Vs. Proprietary Mutual Fund


When brokers and other financial professionals sell their clients shares of mutual funds that are managed by their own company, the funds are referred to as "proprietary." Nonproprietary mutual funds are those managed by someone else. Because proprietary funds carry the potential for conflicts of interest, investors should be careful about buying them simply on a broker's recommendation.

Understanding Potential Conflicts

  • The simple fact that a mutual fund is propriety or nonproprietary is neither good nor bad. But understand that your broker may well have a financial incentive to promote his company's funds ahead of nonproprietary funds. What's good for your brokerage (getting investors' money into its own funds) is not necessarily what's good for you (getting the best return on your money).

It Pays to Research

  • Before putting money into a proprietary fund, compare it to nonproprietary funds that are designed to achieve the same ends -- for example, compare a proprietary aggressive-growth fund to nonproprietary funds also billed for aggressive growth. Look not only at performance but also at the fees charged by the fund. High fees on proprietary funds can wipe out any performance advantage. On the other hand, a brokerage may charge lower fees on its own funds, which boosts your real return. Also find out whether you'll be able to keep money in the fund if you switch to a different brokerage. Some make you cash out of proprietary funds if you take your account elsewhere.


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