Several mutual funds are lowering the limits on operating expenses paid by shareholders, effectively cutting their fees.
The changes appear to be related more to increases in fund assets – thanks to last year’s robust market returns and new cash inflows – rather than pressure from regulators. New York Attorney General Eliot Spitzer, in particular, has made it clear he wants to see lower fees charged to fund shareholders.
Spitzer’s office recently reached a settlement related to allegations of preferential market-timing arrangements with Alliance Cap Mgmt Holding L.P. (AC) under which Alliance agreed to reduce the fees it charges fund shareholders by 20% for at least the next five years.
At least four funds have said in recent Securities and Exchange Commission filings that they are lowering limitations on their operating expenses. As fund assets grow, costs associated with their administration — such as transfer agency, custodian and legal fees — usually shrink as a percentage of net assets, resulting in a lower expense ratio. Funds typically charge investors the maximum under the cap.