Fund expense ratios headed up in 2009

Mutual funds fees will be going up next year, with market turmoil likely to be the main culprit.

Stock funds could experience an average increase in expense ratio of 0.05 to 0.1 percentage points, said Jeff Tjornehoj, a Denver-based senior research analyst at Lipper Inc. of New York. And bond funds could go up slightly, maybe 0.01 to 0.02 percentage points, he added. In addition, as assets have declined this year, some funds that operate with break points may have dipped below that level, causing management fees to rise.

“I absolutely expect fees will go up,” Mr. Tjornehoj said. “A lot of fund complexes work on a sliding fee scale. There are break points where there is a margin where costs go down. Unfortunately, costs go up when assets slide back down below those break points.”

“This is the worst year on record for equity mutual funds,” Mr. Tjornehoj said. Returns for the average equity fund are down about 40%, he said.

Equity mutual funds have been particularly hard-hit, with record outflows of $48 billion in September and $69 billion in October, according to Chicago-based fund tracker Morningstar Inc.

Worse still, investors are not even aware of the rising costs the funds may already be incurring. Shareholders get less of a return as a result of fee increases.

“Fees are usually constantly being assessed,” Mr. Tjornehoj said. “So incremental changes are already being made.”