Lipper Research Analyst Jeff Tjornehoj on "Business for Breakfast" 1060 KRCN
Tuesday, April 12, 2005
Q: Jeff, mutual fund fees have gotten a lot more attention since EliotSpitzer began investigating the industry. Have you seen any meaningfulresults yet?A: It's been hard to clearly separate the savings from economies of scalefrom actual cost reductions, but when we look at the data from a higherview some trends have definitely taken shape. For instance, we noticed acouple weeks ago that more than 90 fund firms lowered their management feeson some or all of the funds they manage.
Q: How does that translate into the number of funds out there?
A: About 844, or more than twice as many that lowered fees over the lasttwo years combined.
Q: Was this the result of settlements with Spitzer's office?
A: Certainly some of them were. But keep in mind that the Spitzerinvestigations were focused on wrongdoing at only a few dozen funds. Theother 800+ reductions came from firms that decided that appearances reallydo matter.
Q: Do you think these are only temporary reductions?
A: No. Many firms made quite a bit of hay out of their reductions.Fidelity, for instance, was very public about their index fund fees beinglower than Vanguard's--the undisputed leader of index funds. AlthoughFidelity's fine print at the time left the door open for a rollback tohigher, earlier fee levels they decided to make it permanent shortly after.
Q: But if fund companies already considered 'low-cost' were untouched byscandal, what's the incentive?
A: I think a lot of this comes from the boards of directors. Boards havecome under the microscope both at funds and at publicly-traded companiesand they've become more active--asking questions or demanding evidence frommanagement. If regulators continue to demand accountability from directorsand trustees then we'll see less rubber stamping and lip service. Anotherpart is that the fund industry is mature--cost and price matter much moreat this stage than several years ago.
Q: Does this mean that funds will get cheaper every year?
A: Well, there's a flipside to the increased scrutiny and regulation: we'veadded more expenses for fund companies to cover. So while managementexpenses may fall here and there going forward, fund companies have to makeup for more costs. You can't get something for nothing.
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Don Cassidy is a Senior Research Analyst at Lipper specializing in fund flows, exchange-traded funds, (ETFs), closed-end funds, equity fund performance, and author of Trading on Volume (McGraw-HIll).
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