How naive for Judge Eastman to say mutual fund investors should vote with their feet if they think a fund's expense ratio is too high.  Selling a mutual fund one owns entails first probably a transaction  fee, but more importantly, and especially in taxable accouts, it precipitates a capital gains tax bill, therefore forcing the mutual fund investor to have less money to invest in a now lower expense ratio fund.

For a mutual fund investor to vote with his feet ends up costing the investor a serious sum and more in the long term.

Prosner is correct.  If one serves as a fiduciary for an infant child, they have to realize the infant cannot and should not be expected to understand all the controls and actions needed.

 Either because of lack of knowledge or time commitment most mutual fund investors are in effect ‘infants’ when it comes to investing.  It is the responsibility of the ‘fiduciary’ to know this about many mutual fund investors and to protect the owner’s interest. If they are not going to do this, we do not need a fiduciary or the expense of a fiduciary.

The stock market and the companies in it are all subject to the pressures of the free market system. Judge Posner seems to believe that mutual fund managers aren't. How can that be? The market may not be perfect, but it is certainly more efficient than any regulator will be in setting prices for fund managers. Based on my own experience with insurance regulators, one thing was perfectly clear, the more regulators got involved the higher prices were.

If, as one person commented, mutual fund investors are "infants" and do not have the time or willingness to do their research, those investors have no business buying and selling any stocks or mutual funds. They need to turn their money over to a professional.

As for the other comment that the investor may be subject to taxes on the sale to get out of a high priced mutual fund. if the investor had done any research originally, this situation probably would not have happened.

Mutual fund investors in a 401(k) plan often cannot vote with their feet because there is only one of each kind of funds. If the large-blend fund in my 401(k) plan had very high fees, should I skip US large caps in my nest egg? That is a ridiculous implication that follows from judge Eastbrook's reasoning.

I would like an modification to the Investment Company Act of 1940 to require posting of the fees I actually pay since my last statement. Warren Buffett's idea to scale trustee board members compensation to fee reduction is a great idea. At least I like to see it tried. I believe these two ideas should remove the judiciary involvement from this dispute and end the ongoing litigation. I am not comfortable with the judiciary fiddling with Congressional intent. If Congress did its job then maybe, just maybe the courts would spend more time applying the law instead second guessing Congress. Of course if these simple changes were considered by Congress  I would expect an unholy stench from Edward C. Johnson III  who historically has opposed any attempt to reduce the growth  in the family fortune.

-pd

 

Amen brother! Consider those who try to benefit from 403(b) and 401(k) accounts. They have little to no choice.

-pd

 

Give Invesco AIM credit for having added dollar and cents expenses for an investor's mutual fund holdings to their statements for at least a few years now

 Philip R. Spitzer CLU, ChFC

My response to OAKM