From a recent Morningstar article about some Invesco research into fees and costs:
I am not really sure what Invesco is trying to pull here. Really! But I am drawn to the absurd and this is absurd.
Are they trying to sneak in an “investors prefer embedded costs to fees” and so attempting to pull the wool over investors’ eyes by getting them to lobby inadvertently for embedded commissions?
Or, are Invesco themselves confused between the transaction costs, the management and advisory costs (one which is clearly a cost and does not follow you home, and the others which are clearly costs of service or fees and do) and so by implication unable to differentiate between the purchase of a mutual fund with management and financial advice from the simple purchase of a loaf of bread?
Who would want to pay a fee for groceries? Indeed. But who would not want to know they are also paying a whole lot more?
All fees are costs in anyone’s balance sheet, even if you call them fees, but fees also imply some form of continuum, a relationship. If I buy a loaf of bread, I do not want to keep paying fees while it remains in my pantry. I want to pay the cost and be done with it. “Costs” might work if mutual funds did not have a recurring continuum (management fees)and advisors did not provide an ongoing “service”, although to tell you the truth, and this is where the reality vortex comes in, these trailing fees are costs of the transaction but called fees (trailer fees).
To frame what you pay for mutual fund ownership as a cost is to play down the significance of the total future costs of mutual fund ownership. When you buy a mutual fund, you take a whole lot of other people home with you, unlike your loaf of bread transaction.
If we simply divide the identity into the money you pay for buying it and the money you pay for the privilege of holding it and the service that tells you what to do with it, both now and in the future, we have both costs and fees. But costs are simpler and imply transaction, which is convenient and less onerous a standard, and the investor may ignore the fee and think they are paying nothing for the benefit.
But I get it: word craft can be used to mesmerise and confuse and to mess reality up so that it loses shape and form and meaning! To use the word cost transforms the mutual fund into a loaf of bread!
And BTW, if anyone is intrigued by the interplay between them and are for an it and an is, I am referring to the humans that make up the corporate entity.