Pity that the fund industry has warts of its own. If ever there were an opportunity to play the hero to the small investor, this is it. If the mutual-fund industry can clean up its act, it could become the last best chance for bringing the disenchanted individual investor back into the equity culture. What should be done? In an era of single-digit returns, the excessive costs, high fees, and high compensation paid to mutual-fund managers seriously erode investor returns. But they have been hidden from investors for years.
What individual investors need are quarterly mutual-fund statements that show exactly how much they are paying out in fees on their accounts. Investors also need to know how much mutual-fund managers are actually compensated. Finally, investors need to be free of 12(b)-1 fees they pay for the funds' marketing and advertising costs. This bizarre tax was imposed in 1980 by Congress to help expand the mutual-fund industry. It was ridiculous then. It is outrageous today.