Simplified Fee Disclosure and Attention to Mutual Fund Fees

77 Pages Posted: 23 Aug 2018 Last revised: 11 Jul 2023

See all articles by Hugh Hoikwang Kim

Hugh Hoikwang Kim

University of South Carolina, Darla Moore School of Business

Wenhao Yang

University of North Carolina (UNC) at Charlotte - Finance

Date Written: July 5, 2023

Abstract

Retail investors’ under-reaction to the cost of financial products is a well-documented but unresolved suboptimal behavior. In this paper, we evaluate the efficacy of simplified fee disclosure in improving investors’ attention to the fees of mutual funds. In an experiment with a sample matching the U.S. population, we estimate the subjects’ attention by measuring the degrees of portfolio changes responding to various fee disclosure formats. We find that investors, on average, react to mutual fund fees as if it is 57.4% of the actual size, but the estimated attention level substantially varies across subjects depending on their socioeconomic background and financial literacy. Simpler and more salient fee disclosures are mainly effective for people with high financial literacy, high income, and urban residence. The result suggests that fee disclosure policies can be more effective when accompanied by auxiliary programs reducing the information processing costs of less sophisticated investors.

Keywords: disclosure policy, mutual fund fees, limited attention, experiment

JEL Classification: G41, G11, G23

Suggested Citation

Kim, Hugh Hoikwang and Yang, Wenhao, Simplified Fee Disclosure and Attention to Mutual Fund Fees (July 5, 2023). Available at SSRN: https://ssrn.com/abstract=3230081 or http://dx.doi.org/10.2139/ssrn.3230081

Hugh Hoikwang Kim (Contact Author)

University of South Carolina, Darla Moore School of Business ( email )

1014 Greene Street
Columbia, SC 29208
United States

Wenhao Yang

University of North Carolina (UNC) at Charlotte - Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States

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