The purpose of this paper is to describe data assembled on all registered US investment companies on advisory fees using the NSAR filings and to analyze the impact of the structure of the advisory contracts on the fees paid to mutual funds advisors. This analysis is particularly relevant now that mutual funds have to explain the rationale for the choice of the advisory fees in their public filings.
The paper summarizes data on advisory fees in the NSAR filings and uses regression analysis to examine the determinants of advisory fees.
The paper summarizes salient features of the mutual fund advisory fee contracts using the NSAR database. The analysis shows that breakpoint fee schedules designed to generate savings, do not automatically translate into lower expenses for the investors.
When determining the renewal of an advisory contract, the board of trustees of a mutual fund will then need to assess myriad factors related to the costs and profits of the fund, including the nature of the fee schedule. Regression models provide objective measures of assessing the reasonableness of advisory fees.
This paper contributes to the ongoing debate on the evaluation of mutual funds advisory fees and highlights the usefulness of the NSAR filings. The debate is especially relevant given the additional SEC disclosure requirements.
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