The fee reduction, which could save investors approximately $350 million over five years, would be on top of the $250 million fine that Alliance is expected to shell out in an effort to settle possible civil fraud charges. Overall, the settlement would be the largest to date in Spitzer’s sweeping probe of the mutual fund industry that began in September, according to a Wall Street Journal report.
Alliance currently charges investors in the company’s stock and bond funds an average of 0.58% of assets in management fees with an average stock fund management fee of approximately 0.77%. With a 20% reduction in mutual fund management fees, investors would pay an average 0.46% overall at Alliance and just under 0.62% on its stock funds. These reductions would put Alliance’s fees just below the average charges by mutual funds of 0.53% in overall management fees and 0.65% on stock funds, according to data from Lipper Inc. cited by the Journal.
A final agreement to settle allegations by Spitzer’s office and the US Securities and Exchange Commission (SEC) of improper market timing and late-trading activities at Alliance could be announced later this week. The final settlement would also include a number of structural changes in the way Alliance funds are run.
Reports of the fee cut though are only likely to further divide the Spitzer and SEC camps on the best way to handle mutual fund company settlements in the current trading imbroglios. While the investigation has not been focused on whether or not Alliance’s fees are reasonable, but rather if improper trading that was allowed to take place, and how it affected the average fund holders, Spitzer has made mutual fund management fees a focus of his investigation. Conversely, the SEC argues that management fees should be handled separately.
Alliance Capital manages a total of $456 billion and, with $39 billion held in its mutual funds, is one of the nation’s largest publicly traded mutual-fund companies. The company, which is majority-owned by AXA Financial, the US unit of French insurer AXA, has admitted to allowing market timing in an undisclosed number of US stock funds, although it was contrary to its anti-timing policies.
After disclosing these activities, last month the company announced the departures of John Carifa and Michael Laughlin at the firm’s request, because of their involvement with “inappropriate” market timing including some transactions that hurt the company’s fund shareholders (See Alliance Capital Execs Forced Out by Trading Scandal ). Carifa was president, chief operating officer, and director of Alliance Capital, and chairman of the board of its mutual funds. Laughlin was chairman of Alliance Capital’s mutual fund distribution unit. Gerald Lieberman became director of Alliance Capital and the firm’s chief operating officer and Marc Mayer assumes leadership of Alliance Capital’s mutual fund business.