The Investment Company Institute has slammed assertions kaChing Group Inc. made regarding mutual fund fees, continuing an online sparring match between the two.
On Feb. 1, kaChing, which provides online investment services that compete with mutual funds, posted an article on its blog claiming that stock funds can cost 3.37% annually. The posting, “Did you know you're paying someone else's mutual fund taxes?” was written by the company's chief executive, Andy Rachleff.
In the posting, he claimed that capital gains taxes add an average of 94% to a mutual fund investor's cost.
“It's no surprise actively managed mutual funds' performance lags the market after ALL their fees and associated costs have been accounted for,” Mr. Rachleff wrote.
On Feb. 12, the ICI responded to kaChing's assertions, stating that the firm had “drastically overstated the fees and expenses of mutual funds.” The mutual fund trade group said that mutual fund investors don't pay other people's taxes but rather are taxed only on their own income over the life of the investment.
In addition, kaChing misrepresented the fees that make up a mutual fund's expenses, said Mike McNamee, the ICI's senior director of public communications, who helped write the response.
“[Mr. Rachleff] counts both front-end and back-end loads, and marketing fees, but funds don't charge both of these loads,” Mr. McNamee said.
Also, if kaChing wants to show that its own expenses, which it claims are about 1.42%, are less than active mutual funds', it should compare them with no-load funds, since kaChing doesn't use brokers, Mr. McNamee said.
“The best comparison to kaChing is a no-load fund — yet they count both front and back loads, plus 12(b)-1 fees, to make the comparison as extreme as possible,” he said.
But in an interview, Mr. Rachleff said that the point of the comparison was to use an average of all mutual funds, and given that many smaller funds get distribution only through brokers, it makes sense to include load as well as no-load funds. He said that the expense analysis uses an average of front-end and back-end loads.
“None of these are our assertions; they all come from Lipper Inc. and Greenwich Associates, who are respected, independent parties,” Mr. Rachleff said. “All we did was consolidate the data.”
E-mail Jessica Toonkel Marquez at [email protected].
