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Monday, December 04, 2000

Stats Provide Possible Legal Shield

Reported by Tamiko Toland

Lipper has recently announced the availability of a new study of the contractual structure of management fees. A cursory examination of the findings reveals something we already knew: most funds experience an economy of scale at around $1 billion.

Why should you care about Lipper's new study?

The findings represents a tool for large fund companies to establish fees parallel to their peers' and to back that up with a valid, legally-defensible benchmark.

In an increasingly litigious world where fund companies watch each other become stricken with shareholder law suits, Lipper's study has currency as a measure of defense.

"As soon as the market turns somewhat south, there will be a lot of pressure on advisors and boards to be cognizant of fees," said Jeff Keil, vice president of Lipper's Board Analysis Services Group. "They're going to be tempted to bring litigation against funds."

Keil pointed out the requirement board accountability spelled out in section 15(c) of the 40 Act [Sean, add link below].

Worried yet? If you aren't already, chances are you'll know soon enough. Lipper has identified which funds need its services. Since this affects mainly larger companies hovering near the breakpoint, the firm is already in the process of contacting likely clients.

Smaller funds looking to place themselves competitively within the market or better understand the fee structure of certain sectors can also take advantage of the study. Lipper plans to unbundle its findings to suit the needs of each client.


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