Data compiled by Chicago-based Morningstar show that holders of actively run US stock funds overseen by the 100 biggest fund companies pay an average $9.80 for every $1,000 invested, down from $10.40 two years ago, Bloomberg reported.
The reduction, which amounts to a total of about $1.5 billion, followed the 2003 kickoff of the fund probe, which focused on market timing, late trading, and certain sales practices. New York state Attorney General Eliot Spitzer is widely viewed as being a prime mover of what is now a joint state/federal investigation.
“The whole world is listening thanks in very large part to Eliot Spitzer, who deserves some sort of medal of honor from the mutual fund investor,” John Bogle, 76, Vanguard’s founder told Bloomberg.
Spitzer used the scandal as a platform for consumer protection and said fees were “grossly out of control,” almost doubling those paid by pension funds. He pledged that all of his settlements with fund firms would include management price cuts and eventually won about $925 million in concessions.
According to the Bloomberg report, the Morningstar study focused on actively managed, diversified US stock funds, a category that excludes index, sector and asset-allocation funds. It compared total fees paid by investors in those funds in 2003 with costs averaged over the past year. The fees include investment management, marketing, administrative and other expenses. The study looked at average costs, based on the rates set by companies, as well as so-called asset-weighted costs, which takes into account which funds consumers actually invested in.
Americans had about $2.4 trillion invested in diversified US stock funds managed by the 100 largest companies on July 31, Morningstar said. Had investors paid the same rates as in 2003, their annual fees for these funds would have been $25.4 billion. Instead, their costs were about $23.9 billion, based on data from Morningstar’s study.
“Investors may not focus first and foremost on cost, but they recognize the impact of cost more,” Don Phillips, 43, a managing director at Morningstar, told Bloomberg. “It’s a huge amount when you think about the collective savings.”
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