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Investment Company Institute President Defends US Mutuals' Fee Levels

Caroline Maxwell, Investors Offshore.com

12 February 2001

The fund industry denies that fees charged by mutual funds are excessive.
Matthew P. Fink, head of the fund industry trade group, the Investment Company Institute, recently defended the industry against accusations that the fees charged to investors in mutual funds are excessive. ICI claims that equity fund fees have fallen 40% on average over the last two decades, money market fund fees are down 24%, and bond fund fees have fallen 29% over the same period. Fink claims that there are 'economies of scale' being passed on to the investor as a result of the growing number of super funds and large fund families, in which expenses are significantly lower.

There are, however, those who disagree. John Bogle, the founder of the pioneering low-cost fund provider, The Vanguard Group, argues that since the mutual fund industry's youth, expense ratios have climbed to 1.61% of assets, as opposed to 0.78% in the fifties. However, ICI argue that this ignores the significant reduction in sales commission on load, which fell from 7.8% in 1980 to an average of 5% this year, with a significant number of mutual funds charging no load at all.

These accusations come at a time when the mutual fund industry is still smarting from the recent SEC ruling, due to go into effect soon, which requires funds to disclose standardised after tax returns in their prospectuses, using a formula based on the tax liability paid by an investor in the highest tax bracket. The Commission has also vowed to crack down on the practise of relying on last minute trades to pump up the value of a portfolio for publicity purposes.

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