Simplified Fee Disclosure and Attention to Mutual Fund Fees
77 Pages Posted: 23 Aug 2018 Last revised: 11 Jul 2023
Date Written: July 5, 2023
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: Suggested Citation