The impact of salient fees: Evidence from the mutual fund market

In 2004 the SEC began requiring mutual funds to include the dollar amount of fund fees in shareholders reports. Before that, funds reported returns net of fees and didn't disclose fees separately. This natural experiment allows me to study the impact of separate reporting of fees on the level of fund fees. I find that average reported retail fund fees decreased by 27 basis points during the five-year period after the change in this rule, compared to the five-year period before the change. This reduction in fees was much higher for funds with higher fees and more volatile returns. I also find that fund investment became more sensitive to fund fees after 2004. These findings support the narrative that reporting of mutual fund fees separately in dollars made fund fees more salient and helped increase fee awareness among the investors, which, in turn, forced mutual funds to decrease fees.