Who says there is no such thing as a free lunch? While regulators are pushing to clean up the fund industry, some short-term shareholders are continuing to eat away at returns of other investors by driving up costs and benefiting from an inefficient system.

The Securities and Exchange Commission and other regulators are searching hard for antidotes to market timing and late trading. However, as they grapple with a possible 2% redemption fee, they are ignoring the fact that even if market timing is stomped out, shareholders invested for the long-haul are forced to subsidize the costs imposed by short-term investors, essentially creating a transfer of wealth flowing from less active investors to those more frequently moving assets, according to recently released research.

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