The settlement between Alliance Capital Management Holding LP, New York, and New York Attorney General Eliot Spitzer could become a template for settlements with other firms enmeshed in the mutual fund market-timing and late-trading scandal, but mutual fund analysts doubt the requirement to lower fees will affect institutional investors.
The Dec. 18 settlement included a $250 million fine that will be used to reimburse investors and an agreement by Alliance to cut the weighted average fees on its U.S. long-term open-end retail funds by 20%, beginning Jan. 1 and lasting for at least five years. Mr. Spitzer estimated the reduction would cost Alliance $350 million over the next five years. Other than the fee reduction, the settlement was reached jointly with the Securities and Exchange Commission.
Lucas Garland, an analyst at mutual fund research firm Lipper Inc. in Denver, who has studied fees for several years, said the target of any new fee structure is likely to be the 12b-1 fees, which mutual fund companies charge retail investors to cover distribution expenses, including marketing and shareholder service expenses such as the printing and mailing of prospectuses. "That's going to be the target and I don't think it will have a major effect on the institutional class," Mr. Garland said. To recoup any lost revenue from lower 12b-1 fees, the industry might include those charges in the traditional sales load, Mr. Garland added.
According to Standard & Poor's, New York, the average 12b-1 fee is 0.64%. The maximum rate allowed by the SEC is 1%.