Mutual Fund Fee Wars Will Encourage Bad Behavior
Investors are more likely to churn their portfolios as costs drop to nothing.
Mutual fund firms are slashing fees.
Photographer: Chip Somodevilla/Getty Images North AmericaFidelity Investments introduced two mutual funds last month that cost investors nothing. One is focused on U.S. equities and the other on international assets. This is not a gimmick. The funds have already attracted almost $1 billion. The move was the latest salvo in a rapidly escalating fee war in the money-management industry. But let’s not declare the death of funds with high sales loads and other fees just yet.
I am strongly in favor of lower fees, just like any rational person. This is simply capitalism doing what capitalism does. Consumers should benefit, especially with all those studies about how fees eat into returns over time. I am also in favor of money managers earning enough to make what they’re doing worthwhile so as to preserve a wide array of consumer choice. People should be able to have more kinds of peanut butter than just Skippy and Jif.