In Mamudi’s article, it’s noted that Karen Dolan, director of fund analysis at Morningstar, and the people at Morningstar have “long been advocates of performance-based fees.” She believes that it would be better to have performance-based fees on periods extending three, five or seven years. Additionally, Dolan suggests the dollar amount brought in by fees be expressed in fund total returns so investors would know how much fees affected the returns.
This could be one more factor that drives investors away from mutual funds and sends them over to ETFs, where there’s transparency and lower fees. Investors won’t be too thrilled to learn that on top of suffering huge losses in the financial crisis, mutual funds still raked in the cash. [Why ETFs are taking market share.]
For more information on mutual funds, visit our mutual funds category.
Max Chen contributed to this article.