Fund supermarkets' less than upfront fee tactics come under fire in a recent Wall Street Journal
The Journal sheds light on the fact that investors buying funds through a "no-fee" supermarket like Charles Schwab
are actually paying fees embedded in higher fund expense ratios. Investors who try to buy the funds directly may still be paying the "no-fee" fee. And fund managers trying to correct the problem are finding the supermarkets' iron grip on their distribution system a bit difficult to work with.
Bridgeway Capital Management
is one of them. The Journal reports that Bridgeway, which made its funds available through Schwab investors willing to pay a transaction fee, introduced a share class with a higher expense ratio for no-fee platforms for several funds, and tried to get Schwab to make those shares available. What was Schwab's response? The discount broker stuck to its policy of offering the lowest-cost shares, a stance that Fidelity also maintains.
This practice may cause certain investors -- who are investing larger amounts of money and for longer -- to keep paying more than if they were invested in a lower-ratio share class with an upfront fee. But whether these investors make a stink and the supermarkets respond remains to be seen.
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