• 👉 Work With Me
• The Arithmetic of Active Management
• S&P 500 – SPIVA Persistance Scorecard
• Communicating Asset Risk: How Name Recognition Affects Risk Perception and Investment Decisions
• IFA Deeper Look Analysis
• Measuring Innovation and Product Differentiation: Evidence from Mutual Funds
• The Effects of Organizational Trust on Investors’ Expectations and Allocations
• Private Equity Ownership in the RIA Space

When you’re deciding where to invest your hard-earned retirement savings, the names you recognize can feel like the safer choice.

A household name — a firm you’ve seen for years, maybe on a stadium or in a commercial — just feels more trustworthy than one you’ve never heard of.

That familiarity feels reassuring. But in investing, familiar doesn’t always mean better. And the comfort of choosing a recognizable brand can come with a real cost — one many investors never realize they’re paying.

So in today’s episode, we’re going to look at why familiar names can sometimes lead to poor investment decisions.

I’ll walk you through what the research reveals about well-known fund companies, why our brains naturally gravitate toward names we recognize, and the questions you can ask to tell whether you’re paying for real value — or simply paying for familiarity.

Welcome to another episode of the Stay Wealthy Retirement Show. I’m your host, Taylor Schulte, and every week I cover the most important financial topics to help you stay wealthy in retirement. Ok, onto today’s episode.

Two Identical Funds, One Familiar Name

Imagine I hand you two index funds and ask how you’d split your money between them. They hold the exact same investments, in the same proportions, for the same fee. Line by line, they’re the same fund.

The only difference is the name on the label. One carries the name of a financial firm you know and trust. The other is a generic, “white-label” fund, with no recognizable company attached.

From a purely financial standpoint, there’s no reason to prefer one over the other — same expected return, same risk. Theoretically, your money should land somewhere around 50/50.

But that’s not what happens when researchers actually run this experiment.

In a working paper published in November of 2025 by the Wharton Pension Research Council, they handed retirement savers a menu of zero-fee index funds.

And to be sure they were measuring trust — and not just name recognition — they picked two asset-management firms people were equally familiar with, but trusted to different degrees: one high-trust, one lower-trust. Then they set each named fund right next to an identical generic version.

Here’s what they found. When the highly trusted name sat beside the generic version of the same fund, they put 65% of their money into the trusted name and just 35% into the generic version.

Same holdings. Same zero fee. Same underlying investments. Yet nearly two-thirds of the money still went to the name that felt more trustworthy.

And then the researchers flipped the test around. They showed investors the lower trusted company name next to its identical generic version of the same fund, and when they did this, the pattern reversed.

This time, people preferred the generic fund, putting 58% of their money there instead of with the branded version.

In other words, the organization’s name didn’t change the investment at all, but it did change how people felt about owning it.

And it went beyond simple preference.

When researchers asked investors what they expected from these funds, participants believed the lower-trust branded funds had a 5 to 7 percentage point higher chance of losing money and were likely to underperform by 2 to 3 percentage points.

Think about that. The funds were financially identical. But the label alone made one version feel riskier, less reliable, and less rewarding.

The researchers even put a number on it by estimating what they coined as a “trust premium” of about 5.3%. That doesn’t mean the trusted fund earned 5% less — it means investors behaved as if trust itself was worth about five percentage points of expected return. In other words, that’s how much they were essentially giving up for the comfort of a name, whether they knew it or not.

Now, trust is not the enemy here. Strong reputations are often earned — through good service and years of doing right by people. The problem is how easily that trust spills into places it shouldn’t. Because if two funds are truly identical, the familiar name doesn’t make anything inside them safer. It doesn’t raise your return. It only changes how you feel — and that feeling can get expensive.

So the question isn’t whether a trusted name is good or bad. The question is: what are you actually getting for it? Are you getting lower costs? Better diversification? More tax efficiency? A more disciplined process? Or are you simply paying for the comfort of a name that feels safer?

And because the names we tend to trust most are often the biggest and most familiar, let’s put those names to the test.

The Track Record the Billboards Leave Out

A research arm of Index Fund Advisors ran an analysis called Deeper Look. In it, they lined up the actively managed funds from major, well-known fund families against their appropriate benchmarks and asked a simple question: “did these funds actually add value or not, over their full lives?”

They did it carefully by accounting for survivorship bias, which I’ll explain in a minute, and they tested the results for statistical significance using a t-statistic threshold of 2.0.

I know — “t-statistic” sounds like something you slept through in stats class, so let me attempt to translate. In this context, it’s just a tool for asking: is this fund’s outperformance so large and so consistent that it reflects real skill, or is it small enough that it could easily be explained by random luck?

When you set the bar at 2.0, you’re essentially saying, “We’re only going to count it as genuine skill if the odds that this happened by chance are pretty low.”

And here’s what they found out when they ran the famous names through that filter.

Starting with Goldman Sachs: Out of 97 Goldman Sachs active mutual funds with at least five years of data, 69% either lagged their benchmarks or didn’t survive. Only about 1%  delivered outperformance that was statistically significant.

Morgan Stanley: 88% of 163 of their active funds underperformed their benchmark.

Invesco: 85% underperformed.

Franklin Templeton: 75% underperformed.

T. Rowe Price: 62% of their 120 funds that met the historical criteria underperformed.

Vanguard — a firm practically synonymous with smart, low-cost investing — saw 63% of its 87 actively managed funds underperform. And not a single one produced statistically significant outperformance.

Now, back to that phrase: survivorship bias. It makes these numbers even more sobering. When you pull up a fund family’s current lineup, you’re only seeing the funds that survived. The ones that stumbled badly were quietly closed or merged away, and their track records disappeared with them. So the menu you’re looking at today is already the highlight reel — the disappointments have been edited out.

And it’s not just the funds, it’s the star managers, too. The manager with the eye-catching three- or five-year performance run. The one on the magazine cover, the person who looks like they’ve figured out something everyone else has missed.

It’s tempting to assume that kind of hot streak is evidence of lasting skill, but the data tells a different story. S&P publishes something called the SPIVA Persistence Scorecard, which looks at whether top-performing funds actually stay on top.

And one finding is especially striking: among the U.S. stock mutual funds that were the top performers at the end of 2020, not a single one was still in the top quartile four years later, as of December 31, 2024. Not one.

Before we get into why this happens, just think about that for a moment. The most recognizable names in the business often fail to beat their benchmarks, and even the funds that shine the brightest for a few years rarely keep shining.

That’s the reality and the track record behind the impressive, familiar labels.

Why We Reach for the Label Anyway

So if the evidence is this clear, why do we keep reaching for the familiar name? Why did those experiment participants pour 65% into the label?

The honest answer is that we don’t reason our way to the familiar fund. We feel our way there.

Researchers in another study showed this back in 2005 when they concluded that familiarity lowers our sense of risk — regardless of the actual risk involved. I’ll say that again, “familiarity lowers our sense of risk — regardless of the actual risk involved.”

And that sums it up pretty well. It’s not that we study the unfamiliar fund, run the numbers, and conclude it’s riskier. We just feel that it’s riskier. And the analysis we may conduct, if it ever comes at all, mostly just attempts to reinforce the feeling we already had.

If you’ve been listening to the show for a while, you might remember when I talked about the Pepsi Challenge in a prior episode. In blind taste tests going back to the 1970s, people tended to prefer Pepsi. But the moment you put the labels back on the cups, most people went right back to Coke. The brand overpowered the evidence — even the evidence of their own taste buds.

Investing works the same way. The familiar label wins — even when the thing inside the cup is identical. Maybe especially when it’s identical, because then the name is all there is to go on.

And this bias doesn’t politely disappear once you get wealthy or sophisticated. You might assume the professionals — the people managing money for a living — would be immune, but they aren’t.

In fact, a 2020 study titled “Measuring innovation and product differentiation” looked at advisors managing money for wealthy clients. What they found is that those advisors showed — and I’m quoting — “particularly strong preferences for brand name benchmarks.” The very people paid to know better leaned the same way most investors do.

So if you’ve ever caught yourself feeling more comfortable seeing a household name on your statement, that doesn’t make you careless, or naive, or a bad investor. It makes you human. Familiarity has a powerful pull on the way we make decisions, and in many areas of life, that instinct can be useful. But when it comes to investing, familiar doesn’t always mean better.

So the goal here isn’t to make you feel embarrassed for trusting a name you recognize. It’s to help you notice when that recognition is doing more work than it should, and to make sure familiarity isn’t unknowingly steering your investment decisions.

The Cost of Being Famous

Alright, so the famous names underperform, and the wiring of complex brains nudges us toward them anyway. But there’s another question worth exploring a little deeper: why do the big, recognizable names tend to underperform in the first place?

In short, it comes down to what these firms are actually rewarded for. The business model of a big fund company is built around one thing above all: gathering assets. That’s what gets rewarded. Not how well the products perform, but by how many assets it can attract.

Think about it this way. A fund that balloons from one billion dollars to ten billion dollars generates roughly ten times the fee revenue. And it collects that windfall whether or not it ever beats its benchmark. In other words, the fund company gets paid for gathering money, not for growing it faster than the index.

So how do you gather and attract assets at that scale? You make your name impossible to ignore. The reason a firm’s name is so recognizable is, in large part, that the firm has spent an enormous amount of money making it recognizable. And that spending has to be paid for. It doesn’t come out of thin air — it comes, one way or another, out of the returns of the people who buy the funds.

The big financial institutions in every major city don’t slap their name on the building or the major league stadium because it improves your portfolio. The advertising during the golf tournament isn’t running because it lifts your investment returns. Those expenditures are intentionally designed to convince more people to hand over more money, so the firm can gather more assets and improve their bottom line for shareholders.

The Nobel Prize-winning economist William Sharpe laid this out all the way back in 1991, in a paper with a title that tells you exactly what you’re getting: “The Arithmetic of Active Management.”

His logic and findings are hard to argue with. In short, his paper concludes that, before costs, the average actively managed dollar has to earn exactly the same return as the average passively managed dollar — because together, the two groups own the entire market. They are the market. So after costs, the average active dollar simply has to underperform, by exactly the amount of those costs. That’s not a forecast or a theory, it’s just math.

So when you pay up for a famous actively managed fund, what are you actually buying? The evidence suggests that you’re usually not buying better investment management, you’re buying the comfort of recognizing the name on your statement. And that’s a strange thing to pay a premium for, when you stop and look at it directly.

Follow the Incentives

Really quick, it’s worth noting that this issue doesn’t stop with mutual fund or asset management companies. The same basic force runs through every major publicly traded financial institution.

That’s largely because publicly traded financial firms are designed to serve their shareholders by growing profits. That’s not a scandal, that’s literally their job. But their job does create ongoing pressure to increase margins, and over time, that pressure can show up for customers through higher fees, more profitable products, and/or or less personalized service.

And what may surprise a lot of people is that this isn’t only true of the big publicly traded firms we all know by name. It’s increasingly true in the independent wealth management world, too.

Many investors hear the word “independent” and assume it means the firm is completely free from outside business pressures. But that’s not always the case. In fact, private equity firms have moved aggressively into the wealth management industry. The 10 largest independent wealth management firms have either been completely acquired by private equity or sold private equity firms a meaningful ownership stake in their business. And more broadly, private-equity-backed wealth management firms now control close to 25% of all assets managed in the independent space.

Now, to be extra clear, that does not make those firms bad. And it certainly does not mean the people working there are bad. Many of them are talented, thoughtful, and deeply committed to their clients. Heck, many of these firms made the top 10 list because they built strong reputations and did great work.

But ownership does matter, we can’t just ignore it.

When private equity investors buy into a firm, they do so with a certain expected return on that investment. That expectation can often create pressure to grow revenue, improve profitability, and scale faster. And eventually, that newly added pressure can reach the end client through higher fees, more generalized service, a focus on volume that thins out service, or all the above.

So the intent here isn’t to point fingers and suggest one company is better or worse than another. It’s simply a gentle reminder to follow the incentives. And just like with investments, a familiar name can feel reassuring, but it’s worth pausing to ask whether that familiarity is carrying more weight than it should, and whether it’s influencing a decision that may deserve a closer look.

What to Trust Instead

Now, I don’t want to leave you with a long list of discouraging data and no clear path forward. There is a better way to approach this, it just requires trusting a different set of signals.

You may have heard me, or others, refer to or talk about evidence-based investing. Different people may define that phrase a little differently, but at its core, and to me, it means relying on a systematic process and credible research instead of brand recognition, recent performance, or polished marketing.

In other words, the evidence-based investor is not asking, “Which name do I recognize?” or “Which pitch feels the most convincing?” They’re asking questions like: What does the data actually show? Which factors have been shown to drive risk and returns over long periods of time? What clear, repeatable process is being used to make investment decisions? What am I paying in costs and what am I getting in return?

Let me boil it down to a few principles you can act on.

First, own broadly instead of betting narrowly. The data we just walked through is brutal on stock-pickers and star managers for one reason: almost no one beats the market reliably, and you can’t know in advance who will. So instead of hunting for winners, own a wide, diversified slice of the market and let it work.

Second, treat cost as one of the key variables you can actually control. You can’t dictate what the market returns next year — but you can control what it costs you to participate, in fees and taxes. And every unnecessary dollar comes straight out of your result. Over a multi-decade retirement, that can make a meaningful difference.

Third, anchor your decisions in evidence, not story. Tilt toward what decades of research show actually drives risk and returns — not the fund with the best recent headline or the most reassuring name. And once you’ve built a sound, low-cost, diversified portfolio, the hardest and most valuable thing you can do is to stick with your approach. Discipline beats prediction.Remember, “the best investment, or the best portfolio, is the one you can stick with.”

Now, these core principles don’t guarantee better future returns. Nothing can, and I’d be skeptical of anyone who says otherwise. But they use evidence and data and history to tilt the odds in your favor — and it puts the things you can actually control back in your hands.

So, with that in mind, how do you tell the difference, in your own portfolio, between paying for value and paying for a name? Here are a few questions worth asking — of a fund or even the advisor recommending it.

What is this fund’s total expense ratio? What percentage of this firm’s funds have actually outperformed over the long term? How many funds has the firm quietly closed over that same period? And, perhaps my favorite, can they explain the fund’s systematic investing process without leaning on past performance or a star manager’s name?

And for those working with, or considering working with an advisor you might ask why they use the funds they use. An answer like, “We use this fund because it gives us low-cost, diversified exposure to the parts of the market that research has shown can improve long-term outcomes,” is very different than “We use this fund because it’s outperformed for the last 10 years” or because “the fund manages 50 billion dollars” or because “it’s a trustworthy company.”

Bottom Line

The premium we pay for a familiar name is real, and the comfort it buys is real, too. But it’s important to remind ourselves that it’s comfort and not performance.

Because the evidence keeps telling us the same thing: a five-year run that looks like genius is, more often than not, just luck that hasn’t worn off yet. And the polish on the famous name is typically paying for marketing, not for a better outcome in your account.

So the next time an investment lands in front of you, try running it through three quick questions. Do I actually understand why this is in my portfolio? Could the person who recommended it explain it without pointing to a famous name or a hot performance streak? And am I paying for proper exposure to a proven asset class that supports more broader retirement goals — or for a name or logo I happen to recognize?

Here’s the thing, though. The answer to all of this isn’t to stop trusting. Trust matters enormously in investing — maybe more than anything else, because trust is what keeps you invested when the world gets scary. The problem is never that investors trust, it’s that so many of them are trusting the wrong things.

So aim it carefully. Trust the weight of evidence over your gut reaction. Trust a repeatable process over a charismatic salesperson. And trust an advisor who is legally bound to put you first over a name you simply happen to recognize. That’s where a steadier kind of confidence actually begins — not from the comfort of the familiar, but from knowing your money is working for reasons you can explain.

How This Fits the Bigger Picture

That same principle shapes how my team and I work. For us, investing isn’t where we start the process — it’s where we finish.

We built a framework called the Total Retirement System to connect the four biggest levers in retirement: taxes, income, legacy, and investments. Now, most people — including many advisors — want to start the conversation with the portfolio. And I get it. Talking markets and investments can be fun and exciting. It can also feel like the lever that matters most, or even the part that’s keeping you up at night.

But we address portfolio decisions last, so that by the time we get there, your investments are being built on top of a plan that’s already tax-smart, income-aligned, and legacy-aware. And when those first three pieces are working together, the portfolio finally has a clear job to do — and that clarity is what turns a pile of accounts into an actual retirement plan.

So if you’ve built the savings, but you’re still missing a coordinated plan and would like professional help, just follow the link in the description right there in your podcast app where you can watch a short video of me explaining our process and book a call with our team.

Thank you as always for listening, and once again, to view the research and resources supporting todays episode, just head over to youstaywealthy.com/288

Disclaimer

This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial, or other professional services.