MutualFundWire.com: The ICI Fights Back Noise From a New Fee Critic

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Friday, February 12, 2010

The ICI Fights Back Noise From a New Fee Critic

As the SEC prepares to examine 12b-1 fees, fundsters may want to prepare themselves to repel tacks from a new foe. In Friday's Wall Street Journal "Fund Track" column, Ian Salisbury reports that the Investment Company Institute is arguing with the startup kaChing over how much mutual funds actually cost.

Paul Schott Stevens
ICI
President and CEO

kaChing estimates that funds cost 337 basis points on average, while the ICI puts the figure at only 117 bps. Despite the obvious motivational and perspective difference -- kaChing competes with funds while the ICI serves as fund firms' advocate -- the discrepancy comes mostly from three factors: kaChing factors 94 basis points of average taxes while the ICI doesn't factor in taxes (the ICI notes that such taxes lower the eventual cash out taxes, though); kaChing includes 20 bps of trading costs while the ICI only include nine bps; and kaChing weighs all mutual funds equally in its methodology, while the ICI weights the average according to mutual funds' asset. (So big, lower cost funds from firms like Fidelity and Putnam have a bigger impact than tiny, niche mutual funds with high expense ratios.

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