MUTUAL FUNDS: SEC action casts doubt on performance fees; Accounting mistake illustrates another reason why fees are not popular among firms.(News)

Pensions & Investments, September, 2006 by Hoffman, David

Byline: David Hoffman Action taken this month by regulators makes it harder for mutual fund advisers to rationalize charging performance-based fees, according to several industry experts. That is a shame, because such fees, which go up or down depending on a fund's performance, can benefit investors, some of those observers say.

"They align management incentives with investor results,'' said Russel Kinnel, director of mutual fund research at Morningstar Inc. in Chicago. But performance fees are unusual for mutual funds. Of the thousands of mutual funds, just 348 - including multiple share classes - have performance fees, according to Lipper Inc. of New York. The latest episode to suggest such fees might not be worth the trouble for managers came...

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