When Do Breakpoints Give Mutual Fund Investors a Break?

Tue Apr 22 16:24:38 EDT 2008
By Dr. Faten Sabry with Dr. Winai Wongsurawat of the Asian Institute of Technology, Thailand

When determining the renewal of an advisory contract, the board of trustees of a mutual fund will need to assess several factors related to the costs and profits of the fund, including the nature of the fee schedule. Regression models provide objective measures of assessing the reasonableness of advisory fees. In this article, published in the Journal of Investment Compliance, NERA Senior Vice President Dr. Faten Sabry and Dr. Winai Wongsurawat of the Asian Institute of Technology, Thailand, examine the ongoing debate on the evaluation of mutual fund advisory fees and highlight the usefulness of the NSAR filings. The authors summarize salient features of the mutual fund advisory fee contracts using the NSAR database. Their statistical analysis shows that breakpoint fee schedules, designed to generate savings, do not automatically translate into lower expenses for the investors. This analysis is particularly relevant now that mutual funds have to discuss the rationale for the choice of the advisory fees in their public filings.

This paper has been published in the Journal of Investment Compliance, Volume 9, Issue 2, June 2008.