WASHINGTON, D.C.— During a Senate Governmental Affairs subcommittee hearing examining mutual fund fees and expenses, Chairman Susan Collins (R-ME) today called for better disclosure of mutual fund fees and expenses.
“For many investors, high fees and excessive expenses are even more of a problem than market timing, late trading, and other abuses we have previously examined,” said Senator Collins, who previously served as commissioner of the department that has jurisdiction over securities regulation in Maine. “Investors are entitled to know precisely the fees they are charged, not through hiring a securities lawyer to comb through SEC filings, but in plain and simple terms on their mutual fund account statements. If fees are excessive and opaque or if other questionable practices that reduce investment returns are permitted, the return on hard-earned assets of investors will be less than it otherwise would be.”
Mutual funds have long been promoted as a haven for the small investor who may not have the time and expertise to pick stocks. Many investors like to leave the worrisome decisions regarding which companies to buy and sell to a mutual fund’s professional managers, Senator Collins noted. When choosing from among more than 8,200 mutual funds, however, consumers often focus primarily on the historic rate of return rather than fees. According to a former Chief Economist of the Securities and Exchange Commission, small differences in investor costs can make a huge difference over the long run.
“The first change I would make would be to ensure that investors have access to the information they need to pick and choose among funds,” said Senator Collins.
She also pointed out that the location of disclosure information, revealed mostly through fund prospectuses, must be addressed. “In my experience, investors are much more likely to pay attention to their monthly or quarterly statements than they are to review their fund’s prospectus for fee information. There is no reason why fees could not be disclosed as clearly on a mutual fund report as on a monthly checking account statement.
“We also need to consider disclosing those expenses not currently disclosed, such as the costs funds pay when trading, and make sure that disclosures are standardized enough so that investors can easily and meaningfully compare the costs of different funds,” she added.
This is the second hearing the subcommittee has held on the issue of mutual fund abuses. By December 2003, more than a dozen companies have been named in allegations of misusing millions of dollars of their investors’ money. These practices benefit a select few at the expense of the vast majority of mutual fund investors, and there is evidence that some officials at some fund companies profited personally at the expense of their customers by market timing their own funds.
Although mutual funds have been around for nearly 80 years, they have only become popular investment choices in the past 25 years. With the decline of traditional pension plans and the concurring rise of 401(k) and similar self-directed retirement plans, roughly 50 percent of Americans own a mutual fund today, and total assets are roughly $6.4 trillion. Approximately 445,000 Mainers have invested in mutual funds.