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When do breakpoints give mutual fund investors a break?

When do breakpoints give mutual fund investors a break? Purpose – The purpose of this paper is to describe data assembled on all registered US investment companies on advisory fees using the NSAR filings and to analyze the impact of the structure of the advisory contracts on the fees paid to mutual funds advisors. This analysis is particularly relevant now that mutual funds have to explain the rationale for the choice of the advisory fees in their public filings. Design/methodology/approach – The paper summarizes data on advisory fees in the NSAR filings and uses regression analysis to examine the determinants of advisory fees. Findings – The paper summarizes salient features of the mutual fund advisory fee contracts using the NSAR database. The analysis shows that breakpoint fee schedules designed to generate savings, do not automatically translate into lower expenses for the investors. Practical implications – When determining the renewal of an advisory contract, the board of trustees of a mutual fund will then need to assess myriad factors related to the costs and profits of the fund, including the nature of the fee schedule. Regression models provide objective measures of assessing the reasonableness of advisory fees. Originality/value – This paper contributes to the ongoing debate on the evaluation of mutual funds advisory fees and highlights the usefulness of the NSAR filings. The debate is especially relevant given the additional SEC disclosure requirements. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Investment Compliance Emerald Publishing

When do breakpoints give mutual fund investors a break?

Journal of Investment Compliance , Volume 9 (2): 7 – Jun 13, 2008

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
1528-5812
DOI
10.1108/15285810810886135
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to describe data assembled on all registered US investment companies on advisory fees using the NSAR filings and to analyze the impact of the structure of the advisory contracts on the fees paid to mutual funds advisors. This analysis is particularly relevant now that mutual funds have to explain the rationale for the choice of the advisory fees in their public filings. Design/methodology/approach – The paper summarizes data on advisory fees in the NSAR filings and uses regression analysis to examine the determinants of advisory fees. Findings – The paper summarizes salient features of the mutual fund advisory fee contracts using the NSAR database. The analysis shows that breakpoint fee schedules designed to generate savings, do not automatically translate into lower expenses for the investors. Practical implications – When determining the renewal of an advisory contract, the board of trustees of a mutual fund will then need to assess myriad factors related to the costs and profits of the fund, including the nature of the fee schedule. Regression models provide objective measures of assessing the reasonableness of advisory fees. Originality/value – This paper contributes to the ongoing debate on the evaluation of mutual funds advisory fees and highlights the usefulness of the NSAR filings. The debate is especially relevant given the additional SEC disclosure requirements.

Journal

Journal of Investment ComplianceEmerald Publishing

Published: Jun 13, 2008

Keywords: Unit trusts; Advisory services; Auditor's fees

References