Simplified Fee Disclosure and Attention to Mutual Fund Fees

Abstract

We evaluate the efficacy of simplified fee disclosures in improving retail investors’ attention to mutual fund fees. 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 mutual fund fees disclosed in different styles. 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 disclosure styles 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 targeting to reduce the disclosure processing costs of less sophisticated investors.

Keywords: mutual fund fees, limited attention, experiment, structural estimation

JEL Classification: G41, G11, G23