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A Rolling Thunder

by Mike Mc

That drumbeat you hear far off in the distance? It's the ominous thunder from the coming storm around the fees asset managers collect on their products.

The signs are obvious and numerous:

• SEC Chairman Christopher Cox's ongoing mantra of data transparency and XBRL in the fund space.
• The ever-growing percentage of load-waived business being done in the intermediary channel.
• Proactive, blunt conversations between fund firms and their shareholders about fees, such as those seen on the Web sites for MFS and American Funds.

It's a bit of a running joke inside of kasina how fired up I get about fees. However, I get fired up because of the headstrong position of many firms within the industry. Comments like "we don't really want to have the conversation about fees with our clients" or "that is only going to make us look bad" are commonplace.

In fact, if I had a dollar for every time I heard something along those lines, I might be able to afford the loads on A shares. Of course I exaggerate for effect, but you get the idea.

The point is that our industry simply cannot afford to take a "don't ask, don't tell" approach to fees. As investors and advisors alike lend greater scrutiny to the value they are getting for their money, the only choice is greater candor and transparency.

Instead of hoping the topic goes away, firms need to tackle this head-on, especially as margin pressure continues to increase industry-wide. Wholesalers, Web sites, and marketing materials can all be used in this effort. There should be pride and justification in the fees firms are charging for their expertise, not a secret hope that nobody will notice. Firms leading the pack on this issue, such as Vanguard and American Funds, who have both publicly supported XBRL, will be able to position themselves as a champion of the shareholder and advisor and differentiate themselves from the competition.

Ultimately, this is a topic that isn't going away. Firms might as well embrace the discussion and attempt to make it a net positive. There is a 100% chance of rain; firms should start shopping for umbrellas now.