Posted on: Sunday, July 20, 2003

E-Trade to give rebates on mutual fund fees

By Michael Liedtke
Associated Press

SAN FRANCISCO — Online brokerage E-Trade Group Inc. said last week that it will begin giving customers half of its mutual fund fees later this year in a groundbreaking move likely to focus more attention on investment costs.

E-Trade's planned discounts may jar the brokerage industry, which collects billions of dollars annually for distributing and administering mutual funds.

"It will shake things up quite a bit," predicted Don Phillips, managing director of Morningstar, which tracks the mutual fund industry. "It will be a real eye-opener for a lot of people to see just how much they have been paying on their mutual funds."

E-Trade's offer will be particularly rewarding for wealthy investors. The Menlo-Park based company estimated that a $500,000 mutual fund investment generates about $2,000 annually in so-called "12b-1" and "Shareholder Service Agreement" fees.

Under its plan, E-Trade will return $1,000 of those fees to the hypothetical account owner. The payments will be made every six months.

The rebate offer could even prove enticing for smaller investors, with a $50,000 mutual fund account getting an annual rebate of $100.

Because the rebates will be made annually, E-Trade believes the offer will be especially appealing to long-term investors who accumulate substantially more money over several decades.

E-Trade hasn't ironed out the details with all of the mutual funds that it hopes to distribute. The brokerage currently sells about 3,000 different funds from 231 different families.

Jarrett Lilien, E-Trade's president and chief operating officer, acknowledged that not all the mutual funds are sold on the concept.

"Some are wondering if this is just going to be the first domino to fall and are wondering where the last domino will fall," he said.