Even as investors supposedly become more sophisticated about mutual funds, many remain confused when it comes to the products' fees and expenses, the head of a big investor group said.
John Markese, president of the American Association of Individual Investors, Chicago, said his constituents often pose questions such as: "If my fund is performing well, why should I worry about the cost?" or "Don't higher fees mean better management?"
And perhaps the trickiest: "How can I tell if the fees are expensive?"
Industry observers said that such concerns may force the mutual fund industry to give clearer information about commissions, fees, and fund performance.
Partly because of confusion over fees, "there is no clear way for individuals to judge one fund" against another, said Mr. Markese, who spoke during a panel discussion at an Investment Company Institute conference Monday in New York.
Too many variables must be taken into account when comparing funds, including performance, their size, and the kinds of fees and sales commissions they charge.
"It's not easy to be a price shopper," agreed Erik Sirri, chief economist for the Securities and Exchange Commission, who shared the stage with Mr. Markese.
It's not that the 180,000 members of the individual investors group are unsophisticated, Mr. Markese said. The typical member is a 53- or 54-year- old man with a master's degree who tunes in each week to "Wall Street Week" with Louis Rukeyser.
One reason it is difficult to compare the total costs of different funds is that sales commissions can be hard to distinguish from management and distribution fees.
Panelists kicked around the idea that mutual fund companies would charge only management and distribution fees and let brokers decide on commission rates, as a means of clarifying the confusion over costs.
Mr. Markese said the mystery of mutual funds' true costs would be solved if the various expenses were consolidated in the 12B-1 fee, which is now used to fund marketing and distribution expenses.
Such changes appear unlikely for now. But some fund companies have already made changes to give individual investors more useful information.
For example, American Century in Kansas City, Mo., has started giving retail and 401(k) investors individual rates of return with their quarterly statements. Fidelity Investments is doing the same for its 401(k) customers.
Individual return information is important because individuals' returns may differ from the returns registered by the fund as a whole.