Bank-managed mutual funds are becoming more likely to use break-point discounts on management fees rather than flat fees for investors in funds larger than $1 billion whose assets in the fund have grown to sufficient size.

In doing so, the managers of these funds are following the rest of the mutual fund industry, which has increasingly turned to break-point fee structures for funds that are large enough and in which customers have sizable investments.

The change was highlighted in a study issued last week by Lipper Inc. on mutual fund fees - the first such study of its kind. The study, titled "Mutual Fund Management Fees - 2000," found that funds are increasingly willing to pass along savings due to economies of scale to investors who let their assets grow.

Break points are now the most prevalent fee structure for larger or seasoned portfolios in the industry - a marked contrast to the beginning of the decade, when flat fees were more common, said Geoffrey Bobroff, a mutual fund consultant in Providence, R.I.

Some larger bank-managed fund families, such as Bank of America's Nations Funds, already use break points for all of their open-end stock and bond portfolios. But most bank-managed fund families have not had to face such issues because many have not been large enough to take advantage of cost savings, said Mr. Bobroff.

Even today, the study said, funds with less than $500 million of assets mostly charge flat fees, which suggests that the industry doesn't see opportunities for economies of scale at these levels, said Jeffrey Keil, head of Lipper's board analysis services group and an author of the study.

When assets go over $500 million, break points and other fee structures are more commonly seen, but not until portfolios pass $1 billion do break-point discounts become the majority structure, Mr. Keil said. He added that the study found the largest opportunities for cost savings through economies of scale in funds with $1 billion to $3 billion under management. The reason for this, he said, is that the funds can now afford to do the calculations for break-point charges.

But asset size is not the only criterion that fund companies use to set management fees. Criteria such as the profitability of a fund's adviser and expenses outside of investment management can also be important in determining fees, Mr. Bobroff said.

"A $50 billion fund has more economies of scale than a $6 billion fund," but that doesn't mean its management fees will be proportionately lower, he said.

Though the break-point fee structure is not the most widely used for all asset sizes, the number and relative proportion of management fees go up as the fund grows, the study found. Other structures studied were performance fees (tied to the portfolio's performance) and fees determined by a combination of break-point and performance calculations.

Retail investors are more affected by how funds structure fees than institutional investors are - since the latter have more pricing options open to them - but retail investors have generally shown little interest in how or how much they are charged, Mr. Bobroff said.

"If they did, Vanguard would have all the money today," he said.

But that indifference could change if the market enters a sustained downturn and retail investors begin to pay more attention to how fees eat into increasingly meager returns, Mr. Bobroff said.

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