Mutual Fund Mortality, 12b-1 Fees, and the Net Expense Ratio
Posted: 22 Apr 2005
The Securities and Exchange Commission is currently reviewing Rule 12b-1, which governs how fund advisors may pay for the distribution of fund shares. We provide evidence that even after adjusting for economies of scale, funds with 12b-1 fees have higher expense ratios net of the 12b-1 fees than do funds without such fees. This finding suggests that 12b-1 fees are more than just a deadweight cost. We also demonstrate that 12b-1 fees are highest for funds that ultimately fail, that the proportion of funds with 12b-1 fees is increasing over time, and that the level of those fees is also increasing over time.
Keywords: Mutual funds, 12b-1 fees, expense ratios
JEL Classification: G2, G28
Suggested Citation: Suggested Citation