False Advertising: The Truth About 12b-1 Fees

"Some funds that have built very high marketing costs into their system are awfully pricey for what may well be a low-return environment," said Morningstar's Kinnel. "You could hide it when you were getting 15% a year in stocks and 10% in bonds, but not anymore."

Of course, industry professionals can't even agree on whether fund costs are rising or declining. Vanguard's John Bogle laments that costs, thanks in part to 12b-1 fees, are soaring: He says the average fund's expense ratio was 0.97% in 1981, now it is 1.6%. The ICI, meanwhile, notes that overall fund costs have declined significantly since that time period.

Who's right? In a way, they both are. Expense ratios are indeed on the rise. ICI's numbers, meanwhile, include loads, front-ends and back-ends, in their number. "Pull out the loads, and it becomes much more stark," Kinnel said.

The ICI also measures costs by asset-weighting funds. In other words, a tiny micro-cap fund that has a 2.4% expense ratio doesn't carry the same weight as an index fund that sports a 0.2% expense ratio, such as those run by Bogle's firm.

In this instance, at least, Bogle's low-cost index funds are the industry's friend.

What Do Investors Care?

Of course, the most sustainable reform movement might have to come not from regulators in Washington or at fund firms in Boston, Chicago and Denver, but on Main Street. An increasing migration among fund investors to lower-cost funds may speed any change.

"This comes down to forcing the individual investor to read their fund disclosures, which isn't an easy task," said Lipper's Kiel.

Bullard said that whether by legislation or investors voting with their wallets, the fund industry has to change its cost structure, suggesting a move to an asset-based fee model might be the template. "In the long term, their business model is dead."