Opportunities for creative disclosure

distortions in the calculation of MER

Nigel Finch, Guy Ford

Research output: Chapter in Book/Report/Conference proceedingConference proceeding contribution

Abstract

This paper examines the important role of the Management Expense Ratio (MER) in fee disclosure, and why it is useful in assisting investors in the selection and retention of investment funds. Reporting on a study of 50 Australian investment funds, this paper identifies 17 different fee types levied by investment funds and concludes that only a small proportion of these expenses are included the MER calculation. The research also identifies variations in the way that MER is calculated between different funds which undermines the usefulness of this measure. This paper identifies the distortion that affects MER disclosure, as a result of growth in Funds Under Management (FUM). The introduction of the Growth Distortion Model provides a tool for investment funds to calculate expense accruals to match a target MER, and a tool for investors to compare actual expense ratios between different funds. Finally, this paper introduces the Performance Cost Ratio as an alternative approach to fee disclosure which is designed to overcome the deficiencies identified in MER calculations in Australia.
Original languageEnglish
Title of host publicationThe 17th Asian Finance Association Conference, Carlton Hotel, Auckland, New Zealand
Subtitle of host publicationAsianFA/FMA 2006 Meeting : bridging finance theory and practice, 10-12 July 2006 : book of abstracts
Place of PublicationAuckland, N.Z.
PublisherMassey University
Pages1-15
Number of pages15
ISBN (Print)0473113015
Publication statusPublished - 2006
EventAsian Financial Association Conference (17th : 2006) - Auckland
Duration: 10 Jul 200612 Jul 2006

Conference

ConferenceAsian Financial Association Conference (17th : 2006)
CityAuckland
Period10/07/0612/07/06

Keywords

  • management expense ratio
  • investment fund
  • superannuation
  • fee disclosure

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  • Cite this

    Finch, N., & Ford, G. (2006). Opportunities for creative disclosure: distortions in the calculation of MER. In The 17th Asian Finance Association Conference, Carlton Hotel, Auckland, New Zealand: AsianFA/FMA 2006 Meeting : bridging finance theory and practice, 10-12 July 2006 : book of abstracts (pp. 1-15). Auckland, N.Z.: Massey University.