Dear Board Doc: What Is the Outlook on Fund Fees?
The MFDF’s Board Doc is an occasional feature of the Daily News Feed that features questions from our readers. The answers and commentary provided in our responses do not constitute legal advice and should not be treated as such. Please consult with your independent counsel on questions of compliance with the securities laws and director fiduciary duties. If you would like the Board Doc to consider your questions, please e-mail BoardDoc@mfdf.org
Q: As we settle into another year of overseeing funds, their performance, expenses, and fees, how should we as directors be looking at mutual fund fees and discussing these issues in our 15(c) meetings? Have the trends in mutual fund fees shown any sign of moving upward?
A: Much like last year, 2021 has so far brought volatility and political shifts that will no doubt affect the fund industry. There are few indications that current conditions will shift the persistent themes of the last two decades for mutual fund fees. Prior to the pandemic, mutual funds were weathering the storms of industry consolidation, demand swings toward zero-fee products, collective investment trusts and ETFs, just to name a few challenges. The fund directors’ job has not changed under Section 15(c) of the 1940 Act though directors are right to take current market realities into account when reviewing the advisory agreement and seeking cost advantages and effective advisory services for fund shareholders. Morningstar experts discussed trends in mutual fund fees in an MFDF program that may be helpful as directors begin to assess the mutual fund fee landscape. The trends noted by Morningstar experts all pointed to the fact that investors are continuing to flock to the cheapest funds and advisers charging less and less to keep up with low-cost funds. The experts believed that directors can expect to see even more fee compression, novel fee structures, and the ongoing adoption of new wrappers for product. The program and resources can be found here: