Spitzer's Toil Coming to Bear

December 15, 2003, 1:00 a.m. EST 1 Min Read

Although pricing is usually a Securities and Exchange Commission concern and responsibility, New York Attorney General Eliot Spitzers attempt to lower fees in the mutual fund industry may be progressing, The New York Times reports.

Alliance Capital, which is negotiating a settlement with Spitzers office, will consider lowering fees for shareholders, a senior official told the Times. This has created some resentment from the SEC, which considers itself responsible for such decisions.

The Times said the underlying message of the possible fee-lowering could turn out to be fewer profits for fund companies and more money in the pockets of individual investors. If Alliance and other companies trying to settle with Spitzer start to lower their fees, it could trigger a chain reaction among other firms.

Spitzer has said that fee cuts would not be severe enough to cripple the firms or put them out of business. Russel Kinnel, who directs mutual fund research at Morningstar, said he believes fee cuts would be feasible to some extent.

"Clearly, this isnt a business like the airlines where people can barely find two nickels to rub together," Kinnel told the Times.

Because it has higher expenses than most firms do, Alliance has recently raised fees even amid foundering performance. Spitzers major problem with high fees is that individual investors often pay 25 basis points more than larger, institutional investors.

Currently, Spitzer and the SEC are not in agreement about whether fee reduction provisions should be included in settlement packages.

This is not the first time the two offices have disagreed over fees. Last month, when the SEC quickly settled with Putnam, Spitzer criticized the Commission for not addressing "exorbitant fees."

Massachusetts Secretary of the Commonwealth William F. Galvin told the Times he agrees with Spitzer, partially.

"Im for reducing fees as a remedy, but not a rule," he said, referring to reconciling with investors who have lost money. He added, "I think Mr. Spitzer appreciates that distinction."