SEC Chairman Arthur Levitt questions mutual fund fees.

On Friday, May 15, 1998 SEC Chairman Arthur Levitt called on the mutual fund industry to better educate investors about investment costs and risks. In a speech to the Investment Company Institute Levitt said he was concerned the fund industry is building "unrealistic expectations through performance hype." A televised report on CNBC detailed a survey showing that 51% of investors used performance as their sole criteria for fund selection while only 3.5% paid any attention to fees and expenses. We hope that readers of Retire Early were among the minority that recognize that costs matter.

Retire Early has two suggestions for educating the public on mutual fund fees:

1) Taking an example from the automobile industry, why not have a disclosure similiar to the "gas mileage sticker" on a new automobile. A mutual fund's fees and expenses would be highlighted in bold print along with the range of costs for competing mutual funds with the same investment objective.

2) If the first approach meets too much resistance from the mutual fund industry, we can use a variant of the tobacco warning label, "High fees and expenses are as hazardous to your wealth as cigarettes are to your health."

Other Useful Links

The Vanguard Group - Two Words for the Wise Investor: Costs Matter
Excellent analysis of Levitt's comments from the low cost leader.