Mutual Funds and the New Total Expense Ratio
This study presents the construct of a New Total Expense Ratio built upon the concept of normative transparency of disclosure. This construct presents the reality of adviser/distributor payments to brokers “behind the mutual fund curtain.” The source of these payments is fund and shareholder assets. The New Total Expense Ratio includes: (1) management fees, (2) distribution fees, (3) “other” expenses, and (4) transaction costs. Sub-categories are also included.
SEC adoption of the New Total Expense Ratio would foster significant prohibitions and changes in the huge payments mutual funds make to advisers, distributors, and brokers. However, adoption and recommended prohibitions and changes will require the concerted efforts of objective and proactive independent directors, fund advisers practicing stewardship, the (unlikely) support of the fund industry, and, finally, the political will for regulatory reform.
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