Mutual Fund Fees Continue to Fall

December 15, 2005 ( - Lipper reports that 2,830 funds reduced their management fees in 2004, compared with 622 that did so in 2003.

USA Today reports that the fee reductions were not one-time cuts but contractual agreements with the funds’ investment advisers.   The median stock fund charged investors 1.45% of assets for expenses in 2004, according to Lipper, down from 1.50% in 2003.   Total expenses for sector funds declined to 1.78% from 1.89%.

The Lipper report attributed the falling fees to the mutual fund trading scandal of 2003, according to USA Today.   Other reasons for fee reductions include:

  • Breakpoints – Some funds imposed automatic fee cuts for when assets rise above certain levels, called breakpoints. Many institutional investors, such as pension funds, demand breakpoints when they negotiate deals with investment advisers. Robust fund flows the past two years have triggered some breakpoints.
  • Mergers – Some smaller funds with high expenses were merged into larger funds with lower expenses, says Kip Price, Lipper’s head of global fiduciary review.
  • Investors – Investors have poured money into big fund families untainted by the mutual fund trading scandal. Those families, such as Vanguard, Fidelity and T. Rowe Price, tend to have low expenses.

Kunal Kapoor, director of fund analysis at Morningstar, doesn’t think lower fees are a sign of the industry’s newfound consideration for the small investor.   He said funds often lower fees as they grow.   Whatever the reason, most critics say the reductions are long overdue.