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One is distribution: the people who sell funds to investors have had little incentive to sell cheap ones.
SECURITIES law makes it plain: America's mutual funds are to be managed on behalf of investors not the people who sell funds or advise fund managers.
For brokers and financial advisers who sell funds to investors, the retirement shares provide increased service fees over the long haul.
In addition to commissions that may be used to encourage brokers to sell funds, there are large payments of "soft dollar" commissions.
It would also ban backroom transactions like revenue-sharing deals that enrich the people who sell funds and hurt investors by keeping costs high.
These fees, which include payments to brokers to sell funds as well as advertising costs, can add as much as a full percentage point to mutual fund expenses.
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Advisers, banks and others who sell funds-of-funds may have financial incentives to maximise sales, but may not care how the fund itself performs.Banks' in-house private-equity funds often perform poorly because of conflicts of interest: they may be made to invest in a company because the bank hopes to win other banking business from it later.
Can I still buy and sell fund units?
Regulators have recently increased their scrutiny of the relationships between fund managers and the brokerage firms that not only execute their trades but also sell fund shares.
In the past two years Kovacevich has staffed 1,200 Wells branches with bankers licensed to sell funds-with the rest of the chain to follow.
"The fund marketers say you must have style purity to sell fund shares," says Bogle.
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