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The Hidden Costs in Fund Trading

Traders Magazine, March 2004

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.

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