SEC FUND COST CYBERCALCULATOR DEBUTS TO CHEERS AND SNEERS: SOME FEAR INVESTORS WILL MISS POINT OF KNOWING EXPENSES

The Securities and Exchange Commission’s free online service that helps investors calculate mutual fund expenses opened last week to mixed reviews.

The mutual fund industry’s top trade group says the service encourages investors to examine their holdings more closely. Though some financial advisers laud the latest SEC effort to take the mystery out of cost analysis, however, others worry investors will miss the point, preferring to invest in the cheapest portfolios regardless of whether they are appropriate for their needs.

The online calculator, posted last week at www.sec.gov, works much like those offered by several major mutual fund companies, including Fidelity Investments, Vanguard Group and T. Rowe Price Associates Inc. Each allows investors to establish hypothetical portfolios, then generate risk, return and tax figures based on the information entered.

The fund company calculators, however, are for calculating the expenses of Roth and conventional individual retirement accounts rather than individual mutual funds.

Many are applauding the SEC’s effort, including the Investment Company Institute.

“We congratulate the SEC for making this tool readily available for investors,” says Matthew Fink, president of the fund industry trade association. “It gives them another reason to examine a fund’s prospectus, particularly the fee table” — which the ICI suggests is examined closely by less than half the nation’s fund holders.

adviser endorsement

Morgan Stern, a financial adviser and principal of Capital Management Consultants in Portland, Ore., is equally enthusiastic. “It’s great that the SEC is continuing to modify its role as a consumer advocate,” he says.

The public has become far too dazzled by performance numbers, he adds, and increasingly needs help in discerning what funds most make sense on an individual basis.

But not all financial advisers see value in the new tool. Lewis Wallensky, an adviser in Los Angeles, calls the information provided by the SEC’s calculator “meaningless” because it doesn’t take into account numerous unquantifiable variables.

“You can’t just invest in Investment Company of America because its expenses are incredibly low compared with Templeton Developing Markets, which has very high expenses,” says Mr. Wallensky. By focusing on expenses alone, he says, an investor overlooks the highly critical planning strategy of a fund. (Indeed, in 1994, the Templeton fund returned 70%, while American Funds’ ICA returned just 5%.)

“It’s like taking Prozac without being depressed,” Mr. Wallensky offers.

“I believe the adviser industry probably wants more involvement on the part of the SEC, but not in regard to (calculating fund expenses),” says Jim Hohman, managing director of Allegheny Financial Group in Pittsburgh. “There’s already too much energy focused on whether or not investors are being nickeled and dimed to death.”

“No investment is free,” says Chris Wloszczyna, an ICI spokesman. “But it’s important for investors to know what costs they are paying and what cost structure is best for them.”

Indeed, in using the SEC’s calculator, it’s all but impossible to avoid closely examining a fund’s prospectus.

many variables

To tabulate the bottom-line effect of the fund’s fees, investors must punch in how long they plan to hold the fund, the anticipated annual rate of return, the front-end and back-end loads attached, whether or not the fund converts from one share class to another after a designated period and the fund’s operating expenses.

“It’s not the only tool on which an investor should rely, but enabling them to better understand the elements of investing is a win-win situation,” says Mr. Wloszczyna.

Adds Glenn Woody, an adviser in Costa Mesa, Calif.: “We’ve long passed the point where there isn’t enough information available. Now we have to help make heads or tails of it, and any tool that helps in that effort is OK in my book.’