|
 |
| 2003
News and Press Releases |
|
|
HEADLINE:
Closed Fees Come Under The Spotlight
By: Ellen Kelleher in New York
FinancialTimes.com. December 11, 2003
_________________________________________________________________________
EXCERPT: As the battle to rid the mutual fund world of scandal broadens, the fees that mutual fund shareholders pay to cover funds' marketing and distribution costs - known as 12b1 fees - are now under scrutiny. The fees are controversial because shareholders in funds closed to new investors that do not require marketing are forced to pay them.
In addition to the usual costs for management and advisory services, about 139 closed funds tack on 12b1 fees, according to Standard & Poor's, the rating agency. The average that these investors pay in 12b1 fees each year is about 0.62 per cent of the fund's total net assets with the charges ranging from 0.25 per cent to 1 per cent, which is the maximum. That is a fairly sizeable amount if one considers that a mutual fund's total assets can amount to tens of billions of dollars. This week two lawsuits were filed in a court in Manhattan by a disgruntled shareholder looking to get his 12b1 money back from Dreyfus and Bjurman, Barry & Associates, two groups which place such fees on closed funds. And next week, a Senate subcommittee will listen to testimony from industry experts on the issue. Chris Traulsen, a senior analyst at Morningstar, the fundtracker, believes the "Securities and Exchange Commission should probably take a good hard look at how 12b1 fees are being used, particularly the way that closed funds are using them". As they are frequently put towards helping to compensate those brokers who sell fund shares, he believes they create conflicts of interest. "Given many of the allegations that have surfaced so far, I think that the practice needs to be revisited," Mr Traulsen says. "It is unclear whether the 12b1 fee has any benefit for shareholders." Some argue that it is not improper for closed mutual funds to charge 12b1 fees since they continue to service existing shareholders in closed funds who buy new shares in those funds. Jeff Kiel, an analyst at Lipper, the US funds research firm, believes the bigger problem is a lack of disclosure. "Where the money is going is not evident in most funds' prospectuses," he says. Mr Kiel estimates that about two-thirds of all mutual funds charge clients 12b1 fees. In most cases, the others that do not are marketed directly and not sold by brokers. The SEC introduced 12b1 fees in the early 1980s, when the mutual fund industry was struggling.
|
|
|
