Drivers of Mutual Fund Investment and Marketing Performance in a Changing Regulatory Environment

Abstract

Mutual fund management companies have offered to reduce the absolute level of fees and alter the fee structure as a step to reaching a settlement with the New York Attorney General. This has raised questions about how these changes will impact the future profitability of the funds, and the prospects of new money inflows. In this article, Duke and Upadhyay analyze the factors in the mutual fund industry affecting the demand from investors, the follow-on reaction of the mutual fund management companies, and the anticipated impact on the investment and marketing performance of the funds. They suggest that while increasing the size of the fund may be good for economies of scale and increasing earnings from the fees associated with fund management, it may not be good for the fund's overall investment and long-term marketing performance.