How Much Percentage Does the Investor Manager of a Mutual Fund Get?
According to Wall Street Week on PBS, in 2003, the average salary for a mutual fund manager was $325,000. What percentage of the fund's earnings are paid to managers is a bit more difficult to determine, however. Mutual fund management fees are complex, and the salary structure for most funds is not straightforward. Management fees for most mutual funds range between 0.5 percent to 1 percent of the average assets owned by the fund. But this doesn't present the entire picture, because it doesn't include bonuses and other compensation measures.
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Expense Ratio
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Each mutual fund has an expense ratio, which includes the fund manager's salary. The terms of the ratio are outlined in the fund's prospectus. The ratio is a calculation of the management fee plus administrative costs divided by the average value of assets under management. It is unclear how much of the management fee the fund manager receives, because the management fee includes an accounting assumption that includes the cost of hiring the fund manager.
Hidden Fees
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Many mutual fund investors check the expense ratio before buying a fund. However, most funds have hidden fees not calculated in the expense ratio. These hidden fees can include trading and transaction costs and manager bonuses, which may be unreported. Every time a stock is bought or sold by the fund manager, trading expenses incur. According to PBS, other hidden fees appear to be related to management bonuses.
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High Costs and Quality
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According to Morning Star, the 25 worst-performing funds in 2006 had expense ratios between 3 and 15 percent, whereas the average expense ratio for funds is around 1.5 percent. Highly paid fund managers don't necessarily provide better returns. In fact, the higher the expense ratio, the less money investors typically earn on their fund.
Fee Impact
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Management fees and other expenses may not seem significant, but they add up. For example, if a fund has $300 million in assets under management, a fund manager who earns 1 percent can take home $3 million before bonuses. The impact fees have on investment performance add up as well. If your fund earns 10 percent each year, but has an expense ratio of 3 percent, your total annual return amounts to only 7 percent.
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