The Government Accounting Office
(GAO) today released its report on fees in the fund industry. Its recommendation: fund companies should disclose fees in a dollar amount to promote more fee-based competition in the industry. As the report was released two Congressmen -- U.S. Rep. Michael G. Oxley
(R-Findlay) and U.S. Rep. John Dingell
(D-MI) -- forwarded the report to Securities and Exchange Commission (SEC) Chairman Arthur Levitt
asking for action to require mutual fund companies to tell investors exactly what they are being charged in fees.
The report recommends that fund investors be informed of the fees that they have paid in actual dollar amounts on a periodic basis as well as the expense ratio of the fund as is no required. The report states that the goal of the disclosure would be to prevent fee-based competition in the fund industry. It adds that a dollar-based fee disclosure would also put the fund industry the same methodology as other financial services products.
Recognizing that the calculation of these fees would cause increased systems expenses, the report also calls for an exploration of the methodologies that would be used to calculate these fees.
The report is based on a lengthy investigation into the fee structure of the fund industry and how that has changed over time. Indeed, the GAO looked at fee data from the ICI and private data sources which conflicted in their conclusions in whether fees are rising or falling in the industry. To sort out the puzzle, the agency examined the expense ratios of the 77 largest funds in the U.S. from 1990 to 1998.
It found that the fees for the typical large fund did indeed fall during the period, but that the fees did not fall at equal rates and that the fees for some funds increased. On average, the typical stock fund saw its fees decline 12 percent from 1990 to 1998 while fees of the average fixed income fund fell six percent.
"Investors deserve to know exactly what they are paying for mutual fund services on a regular basis," Oxley said. "You shouldn't have to have a degree in high finance to figure out whether your mutual fund is giving you a good deal." Oxley is chairman of the House Commerce Subcommittee on Finance and Hazardous Materials.
Oxley and Dingell have asked Levitt for two progress reports on mutual fund fee transparency, one at the end of this year and one in June of 2001.
Oxley concluded, "Growth in the mutual fund industry has been powerful, particularly over the last decade. This growth gives mutual fund companies economies of scale, and investors ought to know whether these benefits are being passed on to them."
Download the GAO report in .pdf format here:
Mutual Fund Fees: Additional Disclosure
Could Encourage Price Competition
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