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Jared Dillian
Traders Magazine Online News

Was it Worth It?

In this piece from 10th Man, author Jared Dillian discusses how the ETF revolution is less about ETFs and more about indexing; about how people have come to view stocks less as stocks and more as blobs of stocks.

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April 1, 2004

The Hidden Costs in Fund Trading

By Gregory Bresiger

As federal lawmakers consider measures to reform and possibly end soft dollars, a Lipper study warns that the expense ratio of various funds are often higher than investors believe. In fact, sometimes they're doubling or tripling the stated fund expense ratio. That's because brokerage costs - including the use of commissions in soft dollars - are not now reflected in the published expense ratio, the Lipper study noted.

The study calls for greater documentation of the "commissions drag" on a fund. Lipper warned that, "we realistically question whether most investors read, and how many actually understand, much of what is already disclosed in fund documents." Brokerage commissions are now documented on a dollar basis and are not listed in the prospectus. They are listed instead in other legal documents, such as the statement of additional information. However, investors often do not read that document, according to some fund industry critics.

Donald Cassidy, a Lipper analyst who wrote the report, says some funds have high expense ratios because they either have very high turnover rates or are using large amounts of soft dollars.