As Mutual Funds Lose Value, Many See Hikes in Fees

By Guy Halverson writer of The Christian Science Monitor | The Christian Science Monitor, November 12, 2002 | Go to article overview

As Mutual Funds Lose Value, Many See Hikes in Fees


Guy Halverson writer of The Christian Science Monitor, The Christian Science Monitor


Double the disappointment for most mutual-fund investors: Not only has performance tanked across most stock sectors, but fund fees are heading up.

Investors with $5,000 in stock funds now pay an average of about $72.50 annually in total charges.

But for some smaller investors that amount is gradually climbing toward $85 or even $100, depending on the fund group and the portfolio amount, according to recent analysis by information firm Lipper Inc.

Here's why: At most mutual funds, management fees are based on the total amount of assets in a fund. As the value of the fund rises, the fee is assessed at a lower rate. But as the fund shrinks - because of falling market value or as investors shift into other investments - a higher rate is assessed.

"The management-fee increases have only begun, and so most investors probably don't even realize what is happening yet," says Jeff Keil, vice president of Lipper's global fiduciary review group in Denver. "But we expect the increases to become larger and more evident in the months ahead."

Interestingly, there is no across-the-board evidence that fund managers are taking significant cuts in pay despite the market's decline, Mr. Keil says. Currently, junior managers earn upwards of $100,000 annually, and superstars are paid well into the millions, he says.

One reason managers remain in the money: Many mutual funds use "relative performance" as the model for managerial success. Even when a fund sags, Keils says its manager is considered a winner if the funds shrinks less than the market index it is linked to - such as the Standard & Poor's 500 index.

Another fee kicking small investors when they are down: minimum account charges. Shrinking stock values have pushed assets in many accounts below minimum-balance requirements.

At Fidelity, for example, account-holders must pay an annual service fee of $12 if their fund balance falls below $2,000.

At some funds, the penalty is even higher. At American Century, A fee of $12.50 is levied twice a year if your assets fall under $10,000. …

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