After 1997, investors who sent $640 billion into equity funds made 4.5% on their money, or $29 billion, at best. Meanwhile, the funds earned $90 billion in that period from all assets managed. While the equity markets are still slumping, equity funds have taken in $47 billion in advisory fees from September 2000 through November 2002.
The report argues that while advisors pocketed a lot of money in high-bulk market assets, 40 basis points may not seem like a lot during a bull market, but it is magnified against investors' asset losses during this prolonged bear market. Additionally, the report notes that funds earned $60 billion in advisory fees from 1998 to the end of 2002, while new investors pumped $303 billion in and actually lost money.
Investors in equity funds have not realized a return on their investment in five years of professional money management, according to the study. Since the beginning of 1998, the industry, which had $2.5 trillion in equity funds at the time, has taken in about $90 billion in advisory fees and has had $190 billion in total expenses. This translates into a 1.2% expense ratio, which means that, if an investor bought an equity fund at the end of 1997 and that fund had a negative return, the investor also suffered a 6% loss from the fund expenses alone.
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