The Right -- and Wrong -- Steps to Reform the Fund Industry

The brokerage firms, fund companies and regulators need to be more diligent in making sure that investors aren't getting fleeced when buying load funds.

But this recent revelation should also be a reminder to double-check the fees and commissions on any fund you're buying -- whether using a broker or not. Every fund prospectus has a fee table in it, which explains the costs of purchasing and owning a fund. Every prospectus has to include the costs of owning a fund over several time periods, based on a hypothetical $10,000 investment and a 5% annual return.

And if you're investing through a broker, you should ask the guy if you can or did qualify for a reduction in the sales charge. That's what he's there for: To answer your questions and give you decent advice.

Useful: Greater Attention to Fees in General

Expenses have always been an important consideration when buying a mutual fund. But after three years of losses in the market and years ahead that might only deliver single-digit gains, costs have become even more critical.

A fund's expenses are the one constant you can count on. You don't know if a manager will stick around or if a few stocks will blow up. But you can easily figure out how much money won't wind up in your pocket every year. The less you pay in expenses, the more money you get to keep.

And the more attention fees receive from people outside the fund business the better. Rep. Michael Oxley (R., Ohio), chairman of the House Financial Services Committee, wants to know why fund expenses are going up, while the funds themselves have been busy losing shareholder money.

Vanguard founder Jack Bogle is being as vocal as ever about the exorbitant fees that fund companies charge investors. The average U.S. stock fund charges investors close to 1.5% a year. But if you listen to Bogle, those fees are almost double that when you factor in additional costs such as trading. And in a market where you might be lucky if you make 5% a year, a fund's costs would be eating up more than half of your return.