In my years of analyzing investment portfolios, I have consistently observed a powerful psychological pull toward the familiar. We trust our banks with our deposits, our mortgages, and our car loans. It feels natural, then, to extend that trust to the investment products they offer. When a banker you know by name suggests a mutual fund, the inclination is to agree. It feels safe. Today, I want to dissect that feeling with clear-eyed analysis, focusing on the mutual fund offerings that were once associated with Bank of the West. It is crucial to begin with a critical update: following the acquisition of Bank of the West by BMO (Bank of Montreal) in 2023, the landscape has fundamentally changed. This analysis will therefore cover both the historical context of their proprietary funds and the new reality investors now face. My goal is not to tell you what to do, but to provide you with the framework I use to evaluate any investment, especially those offered by a familiar institution.
Table of Contents
The Era of BancWest Investment Services and the “Proprietary” Model
First, we must understand the structure that existed for years. Bank of the West operated its investment services through BancWest Investment Services, a subsidiary of its parent company, BancWest Corporation. Like most regional banks, they offered a suite of proprietary mutual funds. These were funds often managed by the bank’s asset management arm or sub-advised by external firms but branded and sold through the bank’s network of financial advisors.
The central concept here is the proprietary product. When you sat down with a Bank of the West financial advisor, that advisor was likely to have a menu of options that included these in-house funds alongside third-party funds from companies like American Funds or BlackRock. The inherent conflict of interest is a cornerstone of my analysis. The advisor, an employee of the bank or its subsidiary, had a natural incentive to recommend the products that were most profitable for the parent organization. This does not mean the advice was malicious, but it was rarely neutral. The fees from these proprietary funds flowed back into the bank’s ecosystem, creating a revenue loop that third-party funds did not support to the same degree.
The BMO Acquisition: A New Chapter and a Critical Juncture
The financial world is not static. In February 2023, BMO Financial Group completed its acquisition of Bank of the West. This was not a simple merger of branches; it was a massive integration of systems, accounts, and investment products. For holders of Bank of the West proprietary mutual funds, this event triggered a significant transition.
BMO has its own established family of mutual funds. It makes little operational or economic sense for a large institution to maintain two separate, competing fund families. Therefore, a process began to merge or liquidate the former Bank of the West funds into the BMO fund structure.
If you are, or were, an investor in these funds, this is the most critical part of my analysis: You must locate the communication you received from BMO regarding this transition. This mailing would have detailed the specific actions taken for each fund you owned. Typically, these transitions follow one of two paths:
- Fund Merger: Your shares of a specific Bank of the West fund were automatically exchanged for shares of a similar BMO fund. This is often a tax-free event for you, but it changes your investment’s underlying manager, strategy, and fee structure.
- Fund Liquidation: The fund was closed, and your shares were sold. The cash proceeds were then distributed to you. This is a taxable event. If the fund had capital gains, you became liable for those taxes in the year of the liquidation.
This transition period is a moment of forced decision-making. It removes the inertia that often keeps investors in suboptimal products. You cannot simply hold and forget; the choice has been made for you, and you must evaluate the new reality.
The Enduring Framework for Analysis: Costs, Performance, and Benchmarks
Whether analyzing the old funds or their new BMO counterparts, the analytical framework remains unchanged. I apply three rigorous pillars to any mutual fund.
Pillar 1: The Tyranny of Costs
Cost is the most reliable predictor of a fund’s future underperformance relative to the market. Every dollar paid in fees is a dollar that cannot compound for you. Mutual funds have two primary cost mechanisms:
- Expense Ratio: The annual fee, expressed as a percentage of your assets, that covers management, administration, and often a 12b-1 fee (a marketing and distribution fee). This fee is silently deducted every day.
- Sales Load: A commission paid to the broker. A front-end load is taken off your initial investment immediately. A back-end load (or contingent deferred sales charge) is paid when you sell, typically declining over several years.
Let’s illustrate the devastating long-term impact with a calculation. Assume a $100,000 initial investment growing at 7% annually for 30 years.
- Scenario A: Low-Cost Index Fund. Expense Ratio = 0.05%. No load.
- Scenario B: Typical Bank Proprietary Fund. Expense Ratio = 0.85%. Front-end load = 4.5%.
The future value formula is:
\text{FV} = PV \times (1 + r)^nWhere:
- FV = Future Value
- PV = Present Value (after load)
- r = annual return after fees
- n = number of years
For Scenario A:
- PV = $100,000
- r = 7.0% – 0.05% = 6.95%
- \text{FV} = \text{\$100,000} \times (1 + 0.0695)^{30} \approx \text{\$761,220}
For Scenario B:
- Load = $100,000 * 4.5% = $4,500
- PV = $100,000 – $4,500 = $95,500
- r = 7.0% – 0.85% = 6.15%
- \text{FV} = \text{\$95,500} \times (1 + 0.0615)^{30} \approx \text{\$576,180}
The result is not just underperformance; it is a wealth transfer. The higher costs of the bank fund cost this investor $185,040 over three decades.
Table 1: The Compounding Impact of Investment Fees
| Metric | Low-Cost Fund (0.05%) | Higher-Cost Bank Fund (0.85% + 4.5% Load) | Difference |
|---|---|---|---|
| Amount Initially Invested | $100,000 | $95,500 | -$4,500 |
| Annual Fee Cost | $50 | $850 | +$800 |
| Portfolio Value After 30 Years | ~$761,220 | ~$576,180 | -$185,040 |
Pillar 2: Performance Against a Benchmark
Past performance is a poor sole predictor, but its comparison to a benchmark is revealing. The question is never simply “did the fund make money?” It is “did the fund outperform a simple, low-cost index fund that tracks the same market, after all fees are accounted for?”
For a U.S. stock fund, the benchmark is the S&P 500 or the Russell 3000. For an international fund, it’s the MSCI EAFE or ACWI ex-US index. Data from S&P Dow Jones Indices (SPIVA) consistently shows that over 10- and 15-year periods, the vast majority of actively managed funds fail to beat their benchmark indices. The high fees of bank proprietary funds create a hurdle that is exceptionally difficult to clear.
Pillar 3: The Role of Advice and Convenience
I must acknowledge a counterargument: value beyond investment returns. For some investors, the relationship with a banker provides discipline, behavioral coaching during market downturns, and a comprehensive financial plan. The higher fees can be framed as payment for this advice and convenience.
However, the modern market offers a superior model: fee-only fiduciary advisors. These advisors charge a flat fee for a plan or a percentage of assets under management (AUM). They have no incentive to sell high-fee funds because their goal is to grow your assets efficiently to grow their AUM fee. They implement plans using low-cost ETFs and index funds from firms like Vanguard, Dimensional Fund Advisors (DFA), and iShares. This structure aligns their success directly with yours.
A Practical Guide for Current and Former Investors
Your action plan depends on your situation.
- If You Still Hold the Funds (Now BMO):
- Identify: Find your fund’s ticker symbol on your statement.
- Research: Use Morningstar or the BMO website to find the fund’s prospectus. Note its expense ratio and any new sales charges.
- Benchmark: Compare its 5- and 10-year performance to a relevant Vanguard or iShares index ETF.
- Decide: Does the fund’s strategy justify its higher cost? Has it consistently outperformed its benchmark net of fees? For most, the answer will be no.
- If Your Funds Were Liquidated:
- Taxes: Ensure you reported the capital gains or losses on your tax return for the year of liquidation.
- Opportunity: You now hold cash. This is a clean slate. Do not feel pressured to immediately reinvest it into a BMO product. Consider a low-cost brokerage account to build a simple, diversified portfolio of index funds.
- If You Are Considering New Investments:
- Ask Direct Questions: Any advisor, at BMO or elsewhere, must answer these clearly:
- “Are you a fiduciary?” (This is legally required for RIAs but not for all bank brokers.)
- “What is the total annual expense ratio of this fund?”
- “Is there any sales load, either upfront or on the back end?”
- “Can you show me a performance chart comparing this fund to its lowest-cost index fund alternative over 10 years?”
- Ask Direct Questions: Any advisor, at BMO or elsewhere, must answer these clearly:
Conclusion: Beyond the Brand Name
The story of Bank of the West mutual funds is a microcosm of a larger trend in investing. The era of high-cost, proprietary bank products is waning under the weight of overwhelming evidence and competitive pressure from low-cost index funds. The BMO acquisition simply accelerated the process for these specific funds.
Investing is not about finding a hidden gem or a secretive product offered only to clients of a certain bank. It is about owning the entire market at the lowest possible cost, minimizing behavioral mistakes, and staying disciplined for the long term. The most prudent path to building wealth rarely leads through the proprietary products of a commercial bank. It leads through the straightforward, transparent, and low-cost vehicles offered by investment firms whose only business is investing. Your financial future is too important to be anything less than deliberate with your choices.
