Mutual Funds: Conflicted Distribution and the New Total Expense Ratio Construct

Posted: 21 May 2019

See all articles by John A. Haslem

John A. Haslem

University of Maryland - Robert H. Smith School of Business; University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2010

Abstract

The updated New Total Expense Ratio is designed to categorize properly each type of mutual fund fee and expense. The purpose is to provide normative transparency of disclosure to serve the primary interests of fund shareholders. The current regulatory scheme of disclosure is short on transparency and long on opaque.

The Appendix includes the Ratio Construct and each category and component. The Ratio Construct is designed for mutual funds that distribute shares through brokers and other financial intermediaries, but can be simplified for no-load funds. The Ratio provides normative transparency of disclosure to fund shareholders with the goal of its adoption by agreement or regulation.

The next major step is to cost each of the fees and expenses in the Ratio Construct. This article takes the first step by using research findings to estimate Direct Distribution Fees and Total Transaction Costs Net of Soft-Dollar Trade Costs.

Discussion focuses on mutual fund distribution, including 12b-1 fees and share classes, distributor and types of distribution, revenue sharing payments, soft-dollar trades, directed brokerage, and distribution research and costs.

Keywords: New Total Expense Ratio, mutual funds, normative transparency, distribution fees, 12b-1 fees, soft-dollar trades, revenue sharing payments, agency conflicts, costs

JEL Classification: G2, G23, G28

Suggested Citation

Haslem, John A. and Haslem, John A., Mutual Funds: Conflicted Distribution and the New Total Expense Ratio Construct (October 5, 2010). https://doi.org/10.3905/jii.2010.1.3.065, Available at SSRN: https://ssrn.com/abstract=1638452 or http://dx.doi.org/10.2139/ssrn.1638452

John A. Haslem (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

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Washington, DC DC 20016
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202-236 3172 (Phone)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742
United States
202-387 2025 (Phone)

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