The Fierce Mutual Fund Fee Competition
A cruel war rages in the financial world, a war that takes as its victims uncompetitive funds, namely the Fee War. The funds are fighting for investors, their weapons being the fees they charge.
There will be no fund that will win the war. Instead the investors are the ones who enjoy the whole thing, waiting to see how far the fees will drop in the competition among the funds. This fierce fee competition has been caused by the great index popularity and the wide use of ETFs. Additionally, the wide-reaching fund regulations and the many scandals in the financial world further contributed to the development of the Fee Wars.
Vanguard's image as the lowest fee company is being threatened by such companies like Fidelity through the lowering of their index fund fees. Fidelity has cut the fees on several of their funds like the Spartan U.S. Equity Index, the Spartan Total Market Share, the Spartan International Index and others.
What's more the war was entered by several US funds that have embarked on the reduction of managed fund fees. But it is too early to celebrate since managed funds seldom battle with index funds on fee basis.
When management fees, broker fees and 12b-1 fees enter the picture, understanding fund fees becomes even harder for the average investor. Additionally, fees represent expenses that reduce the amount of money you can operate with, thus represent a factor for the reduction of your potential profits.
Fee Wars may be destructive for the funds themselves due to the possibility of expert managers transferring to hedge funds for a higher pay. Additionally, fee wars may result in a decrease in the number of funds that are willing and able to enter the field. On the other hand, they are beneficial only for the investors, leaving them with lower expenses.
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