As mutual funds continue to grow, more funds are charging lower fees to investors, and some industry watchers say it's about time, USA Today reports.
In 2004, 2,830 mutual funds cut the fees they charge investors, representing an increase of 355% from 622 in 2003, according to Lipper, a fund research company owned by Reuters.
"It's like your doctor telling you he's going to start taking your blood pressure," said Roy Weitz, of FundAlarm, and industry watchdog Web site. "That's good, but he should have been taking it all along."
The median fee charged by equity mutual funds also dropped in 2004 to 1.45% of assets, compared to 1.5% in 2003. During the same period, sector funds cut management expenses from 1.89% of assets in 2003 to 1.78% in 2004, according to Lipper.
In part, Lipper attributes the industry-wide drop in costs to the trading scandal of 2003. That year, giants Janus and Putnam were charged with improper trading, and subsequently agreed to reduce fees as part of a settlement with New York State Attorney General Eliot Spitzer. Breakpoints, mergers and pressure form investors may also have contributed to the industry's fee-trimming trend.
By October, mutual fund assets swelled to $8.5 trillion, compared to $8.1 trillion in December 2004, and only $7.4 trillion the year before that, according to the Investment Company Institute. Also recently, large companies have gobbled up smaller companies with higher expenses.
Morningstar's Director of Fund Analysis Kunal Kapoor said that the falling fees are to be expected. "You've had the stock market doing well the past three years, the asset flow doing well - you'd expect some expense reductions, he said.