More Funds Cutting Fees, Scrapping B Shares

More fund companies are cutting their fees and doing away with B shares as a result of competitive pressures and the fund scandal, analysts tell The Wall Street Journal.

The lower fees that regulators imposed on Alliance Capital, Putnam Investments and RS Investments as part of their settlements are forcing other fund giants to follow suit, and the downward pressure is likely to continue in 2005.

"We've seen managers cutting fees in a lot of cases," said Jeffrey Ptak, a senior analyst with Morningstar. While many funds had positive inflows and performance this year, giving them economies of scale that warrant lower fees, "there are also some managers who are more sensitive to fees in the wake of the mutual fund scandal," he said.

As point in fact, Fidelity lowered the expense ratio on five index funds in September, prompting E*Trade to do the same on a few of its index funds.

Meanwhile, industry critics continue to draw investors' attention to hidden costs, such as Zero Alpha Group's recent report on how trading costs, totaling more than $17 billion a year, can lower an average actively managed fund's performance by 48 basis points a year. On a small-cap fund, that drag can be as much as 1.5%.

Regulators have also sounded the drums on how soft-dollar deals between brokerage and mutual fund firms can lead to higher trading costs, also lowering investor returns.

Finally, more funds are eliminating B shares, to avoid regulators' accusations that A shares carrying commission discounts may have been the better choice.

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The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.