Would Paying Separate Fund Fees Improve Awareness?

REKENTHALER REPORT: Making fund fees more transparent and standing up for fund investor rights

John Rekenthaler 3 June, 2013 | 8:20AM
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By the Book

For $5,876, you can take a 10-week course at the University of Chicago Booth School of Business that will teach how consumers make rational economic decisions. If you charge the same price for an item, but vary the terms--for example, change from an up-front payment to 24 monthly instalments with the interest costs built in--you won't fool the public, which will understand that the economic cost remains unchanged even if the details are different. Or you can live in this world and see just how wrong that precept can be.

At a recent round table of law professors and lawyers who specialise in mutual fund issues, one attendee proposed that mutual funds no longer be permitted to collect their expenses by taking money out of a fund, but instead should send shareholders an annual bill that they would need to pay directly (via cheque, credit card, and so on). This would increase investor awareness of fees, he said. The proposal was nixed by other attendees because then "nobody would buy mutual funds."

This makes no sense whatsoever, per the Booth School. And it's correct.

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John Rekenthaler

John Rekenthaler  John Rekenthaler is vice president of research for Morningstar.

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