MUTUAL FUND MORTALITY, 12B-1 FEES, AND THE NET EXPENSE RATIO

William P. Dukes, Philip C. English and Sean M. Davis

Journal of Financial Research, 2006, vol. 29, issue 2, pages 235-252

Abstract: The Securities and Exchange Commission is currently reviewing Rule 12b-1, which governs how fund advisors may pay for the distribution of fund shares. We provide evidence that even after adjusting for economies of scale, funds with 12b-1 fees have higher expense ratios net of the 12b-1 fees than do funds without such fees. This finding suggests that 12b-1 fees are more than just a deadweight cost. We also demonstrate that 12b-1 fees are highest for funds that ultimately fail, that the proportion of funds with 12b-1 fees is increasing over time, and that the level of those fees is also increasing over time. 2006 The Southern Finance Association and the Southwestern Finance Association.

Date: 2006
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