At the start of the new year, the Securities and Exchange Commission is requiring funds-of-funds not just to present their overlay expense ratio but the underlying expenses of the funds they invest in, the Associated Press reports.
And investor advocates think this is much-needed transparency. “In many cases, funds-of-funds have layering of fees taking place,” noted Susan Ferris Wyderko, executive director of the Mutual Fund Directors Forum. “It’s the actual cost of investing as opposed to hiding some of the expenses.”
But the managers of some small funds-of-funds are crying foul, saying the new requirement will make their funds appear overpriced compared to similar offerings at large fund complexes. They usually use proprietary funds as sub-accounts and can absorb many of the expenses because of the shared overhead.