Authors

Stewart L. Brown, Florida State University

Mutual Fund Fees

Abstract

Investors pay billions annually in fees for actively managed mutual funds, despite the availability of far superior, cost-effective alternatives like index funds. Mutual funds, with their unique legal structure, insulate management fees from competitive pressures, thereby enabling fund sponsors to maintain high fees. Contrary to the assumption that legal, regulatory, and governance mechanisms adequately protect investors, this Article demonstrates that such safeguards are largely ineffective. The competitive forces that would ordinarily drive fee reductions are rendered impotent by structural conflicts of interest, ineffective regulatory oversight, and the passive role of independent directors. Fund sponsors capitalize on economies of scale, reaping significant profits as fees remain resistant to market forces. This Article critically examines the failure of the Investment Company Act of 1940, the 1970 amendments, and the judiciary to address these issues, offering new insights into the persistent overcharging of investors and the systemic failures in mutual fund fee regulation. Through a comprehensive analysis, this Article underscores the urgent need for reform in mutual fund governance and regulatory frameworks to ensure that the benefits of scale are passed on to investors.

Repository Citation

Stewart L. Brown, Mutual Fund Fees, 17 Wm. & Mary Bus. L. Rev. 319 (2026), https://scholarship.law.wm.edu/wmblr/vol17/iss2/3