GAO Report on Mutual Fund Fees Released

Makes Recommendations for Improved Disclosure

By John M. Baker, Esq.

The General Accounting Office released its long-awaited, and long (132 PDF pages), report on mutual fund fees. GAO, Mutual Fund Fees: Additional Disclosure Could Encourage Price Competition, No. GAO/GGD-00-126 (June 2000).

The report notes that most investors have focused on performance and service rather than fees, a behavior that the GAO finds unsatisfactory. It also notes that investors in other financial products (e.g., bank deposit accounts) generally receive information that discloses the specific dollar amounts for fees or other charges they pay.

The report recommends as follows:

  • To heighten investors’ awareness and understanding of the fees they pay on mutual funds, we recommend that the Chairman, SEC, require that the periodic account statements already provided to mutual fund investors include the dollar amount of each investor’s share of the operating expense fees deducted from their funds. This disclosure would be in addition to presently required fee disclosures.
  • Because these calculations could be made in various ways, SEC should also consider the cost and burden that various alternative means of making such disclosures would impose on (1) the industry and (2) investors as part of evaluating the most effective way of implementing this requirement. Where the form of these statements is governed by NASD rules, SEC should require NASD to require the firms it oversees to provide such disclosures.

The SEC, NASD, and ICI were given opportunities to comment on a draft of the GAO report, and their comments and GAO responses are included in the report. The SEC response emphasizes recent SEC initiatives to improve fund fee disclosures and to bolster the role of independent directors. It recognizes that investors need to be further educated about fund fees and expenses and states noncommittally that the SEC will consider the GAO recommendations very carefully.

The NASD response expresses concern that the report’s recommendation may be difficult, if not impossible, to implement – a concern that the GAO report rejects.

The ICI response argues that mutual fund shareholders already receive the most comprehensive and understandable disclosure of fees in the financial services world. The GAO report agrees with the ICI that the currently required disclosures are comprehensive and reasonably understandable.

A careless reader of the GAO report might not have realized that this is the report’s position. The report is available online in PDF format as a single huge 9 MB file.

It may be accessed from

An ICI response, with a link to a fact sheet discussing key points in the report, is available at


Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

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