U.S. Markets close in 6 hrs 26 mins

SEC Mutual Fund Fee Review Higlights ETFs’ Low Costs


The Securities and Exchange Commission will reportedly begin a review of distribution fees in the mutual fund business. The examination should further highlight the cost savings that ETFs provide versus actively managed mutual funds.

The SEC “will begin next week an exam sweep of mutual funds’ distribution fees—12b-1, Sub Transfer Agent, revenue sharing and conference fees,” AdvisorOne reports.

The article cited Andrew Bowden, deputy director of the SEC’s Office of Compliance Inspections and Examinations, who was speaking at a conference Friday in Arlington, Va.

“Bowden said that with this targeted sweep of funds’ distribution fees, the agency would assess the amount of these payments, the services provided under them and ‘the interaction of the service agreements,’” according to the report.

The average ETF expense ratio is about 0.6%, compared with roughly 1.4% for actively managed mutual funds. However, some active funds also layer on additional distribution fees that further cut into investors’ bottom line.

Of course, expense ratios vary within the ETF business. Broad-based index ETFs have rock-bottom fees. Meanwhile, ETFs that use more complex strategies or track obscure sectors are more expensive.

“As a commission, what we’re trying to do is understand … what are [the payments] for, what are the services being provided, what’s the level of oversight of those arrangements by the board?” Bowden said, according to an InvestmentNews report. “What is going on in the industry today?”

The information will be collected by the SEC over the next several months and used to evaluate current distribution fee rules, according to the story.

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.