The Sources of Economies of Scale for Actively Managed Domestic Equity Mutual Fund Fees

Several research studies document that mutual fund expense ratios and advisory

fees decline as funds get larger, implying that at least a portion of realized scale

economies are passed on to investors. In this paper, we decompose the annual expense

ratios of actively managed domestic equity funds into their component fees. The

majority of the observed decline in total expense ratios comes from the small fees paid to

nonaffiliated service providers. The two largest components of the expense ratio,

advisory fees and marketing fees, exhibit minimal or no decreases as fund size increases. Paper download www.eur.nl/fbk/dep/dep5/seminars For more information contact Peter Roosenboom; proosenboom@rsm.nl