The mutual fund industry is facing much criticism over their fee structure, and the debate just got heavier with The Supreme Court involved in possible consequences. This could set the stage for exchange traded funds (ETFs) to take off with the market share mutual funds are going to lose.
The latest development helping to bring the issue to the surface comes from the Eighth Circuit U.S. Court of Appeals, and which ever way the ruling goes, it will have definite consequences. It decided to reopen a case against RiverSource which had been turned down by a lower court.
Hannah Glover for Ignites explains that the case centers on complaints from shareholders in 11 RiverSource funds who claim that Ameriprise breached its fiduciary duty by charging more for mutual funds than for similar institutional accounts.
The lower court is being asked to re-examine certain cases surrounding mutual fund fees, using new standards. There is nothing to preclude that court from reaching essentially the same conclusion it did before, concerning the fact that free market economics are influential to larger fees based upon institutional investors which can be passed down to the individual investor, as well.
The outcome of the RiverSource case may induce more shareholder-friendly standards with a wide-range of implications for the industry. Nevertheless, more scrutinty and intense studying of the financial industry is going to occur, and this will support ETFs success in the long run.
This isn’t the only front on which mutual funds are being challenged by ETFs, though. Daren Fonda for SmartMoney reports that there’s growing sibling rivalry in the industry, because more mutual fund companies are also launching ETFs.
Vanguard offers 33 ETFs that are essentially alternative share classes of their mutual funds, for example. Fidelity has one ETF, while PIMCO has filed for a line of ETFs of their own.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.