Around 70% of equity mutual funds increased their expense ratios during the worst of the financial crisis, according to a study released today by Lipper Inc.
Around 70% of equity mutual funds increased their expense ratios during the worst of the financial crisis, according to a study released today by Lipper Inc.
The study, which examined the expense ratios of 1,100 randomly selected stock funds from Nov. 1, 2008 through June 30, 2009, found that for those funds that increased their expense ratios, the average hike was 8.2 basis points.
Jonathan Kreider, a fund research analyst at Lipper, said the increase in fees is not surprising considering the plunge in assets for most mutual funds during that period. Fee increases — fueled by fixed-service costs such as legal, audit, custodial, record keeping, taxes and accounting — were spread over a smaller asset base, he said.
And break points that lower costs as fund assets increase work in reverse as assets decrease, Mr. Kreider said.
He was surprised, however, that about 25% of the expense increases were greater than 10 basis points.
The Investment Company Institute, the mutual fund industry trade organization, would not comment on the report, said Ianthe Zabel, a spokeswoman for the organization. She did, however, point to an ICI report from April that predicted total expenses would rise for the same reasons outlined in the Lipper report.
The ICI report stresses, however, that any rise in fund expenses would not come from increases in management fees.
Lipper agrees that total expense ratios rose not because of an increase in management fees, but because of a decline in assets, Mr. Kreider said.
With assets in mutual funds now rising, Lipper believes total expense ratios could come down before the end of the year, he said.
The report “represents a worst-case scenario,” Mr. Kreider said.
Lipper also found that long-term fixed-income funds’ total expense ratios were largely unchanged, most likely because such funds saw inflows after the financial crisis.
Money market funds’ total expense ratios, on average, declined by 3.3 basis points. Most of this decrease was driven by increased fee waivers for retail money market funds.
Lipper estimates that industry revenue derived from management fees is down roughly 40%. Total fees collected by the industry are down an estimated 30%, the report said.
Earlier this week the Supreme Court heard oral arguments in a case in which investors sued a fund subadviser, claiming a mutual fund’s fees were excessive.
