Embattled mutual fund giant Putnam Investments volunteered Tuesday to cut the fees it charges investors, as New York Attorney General Eliot Spitzer defended his attempts to extract fee reductionsfrom fund companies.
In testimony before a Senate subcommittee, Spitzer said that excessive fees are an example of how mutual fund boards fail to look out for investors. He said his negotiations over fees as part of settlements with fund firms for trading irregularities does not amount to rate setting, as some critics charge.
To illustrate the high fees charged by some firms, Spitzer said that individual investors paid 40% more than institutional investors in fees on Putnam funds — amounting to a difference of $290 million in aggregate in 2002.
Putnam, a unit of Marsh & McLennan, has been hard hit by charges of mutual fund trading improprieties, losing billions in shareholder assets. Its CEO was forced out in November, and though it reached a settlement with the Securities and Exchange Commission, it faces civil charges from Massachusetts regulators.
Ed Haldeman, Putnam’s new CEO, said the company’s fee reduction is not a response to regulatory pressure. ”It’s part of a project <B> . . . </B> to restore investor confidence in Putnam,” he said.
Putnam said commissions will drop from 5.75% to 5.25%, and all its funds will have below-average expenses. The program, which includes added fee disclosure, will save shareholders $35 million a year, Haldeman says.
Shares of Marsh & McLennan fell $1.11 Tuesday to close at $47.18.
The mutual fund scandal ignited in early September when Spitzer settled charges with hedge fund Canary Capital Partners that it engaged in illegal trading practices with four fund companies.
Since then, the investigation has snowballed. In December, Spitzer and the SEC reached a settlement with Alliance Capital Management in which it agreed to pay $250 million in restitution.
Spitzer separately negotiated with the firm for a 20% reduction in management and marketing fees for at least five years — valued at $350 million.
Spitzer is close to concluding negotiations with Massachusetts Financial Services over accusations of trading abuses that would include an agreement to cut fund fees by about $125 million, according to two sources with direct knowledge of the talks.
MFS also is expected to agree to pay $225 million in penalties in a deal with the SEC and Spitzer. The settlement could be announced next week.
