Link: Hennessy versus Bogle in fund-fee spat
John Bogle should spend more time focusing on financial-services reform and less time pointing the finger at mutual fund managers if he wants to address rising fund costs, Neil Hennessy, president and chief executive of Hennessy Advisors Inc., wrote in a letter that appeared in today's The Wall Street Journal.
“Good fund managers often outperform low-cost index funds, and funds' performance is published net of fees, period,” . “I think that Mr. Bogle's time would be much better spent working on solutions to address the financial-regulatory-reform act, which will certainly increase costs to every single mutual fund shareholder.”
In his piece (WSJ August 27), Mr. Bogle noted that fund costs rose to $42 billion from $50 million between 1960 and 1990 — an 800-fold increase — while equity fund assets grew to $5 trillion from $10 billion, a 500-fold jump.
“Conclusion: The huge economies of scale available in managing other people's money have largely been arrogated by fund managers to their own benefit, rather than to the benefit of fund shareholders.”
For one of our typical funds, federal and state registration fees have increased 44%, legal fees have increased 73%, and audit fees have increased 30%.”
Also, while no-transaction fee platforms didn't exist in the 1960s, today funds pay as much as 40 basis points to be on the platforms offered by the likes of The Charles Schwab Corp. and Fidelity Investments
His grievances are shared by many in the fund industry, said Don Phillips, a managing director at Morningstar.
“I think a lot of people would be afraid to do what Neil did and that is to out the distributors,” he said. “The asset managers are taking all the blame for high fund expenses, while the distributors are completely off the radar.”