, the famous Fidelity Magellan, was around $25 billion. Even then, concerns had set in that it had become too large to outperform the market. Since then, Magellan's size hasThe 12b-1 fee is the obscurely-named outrage that dings investors in mutual funds so that management can market the fund. In 1980, the mutual fund industry successfully lobbied the SEC to allow this fee with the justification that a larger fund lowers the expenses for everybody. In theory, the logic is right when you take into account the same expenses being spread over a larger pool of assets. However, there are several problems with this thinking:

1) A larger fund does not necessarily become easier to manage. Over the last 25 years, multi-billion dollar mutual funds have become the norm. When I worked for Fidelity in the early 1990's, the largest fund in the world at the time, the famous Fidelity Magellan, was around $25 billion. Even then, concerns had set in that it had become too large to outperform the market. Since then, Magellan's size has

ied the SEC to allow this fee with the justification that a larger fund lowers the expenses for everybody. In theory, the logic is right when you take into account the same expenses being spread over a larger pool of assets. However, there are several problems with this thinking:

1) A larger fund does not necessarily become easier to manage. Over the last 25 years, multi-billion dollar mutual funds have become the norm. When I worked for Fidelity in the early 1990's, the largest fund in the world at the time, the famous Fidelity Magellan, was around $25 billion. Even then, concerns had set in that it had become too large to outperform the market. Since then, Magellan's size has

expenses being spread over a larger pool of assets. However, there are several problems with this thinking:

1) A larger fund does not necessarily become easier to manage. Over the last 25 years, multi-billion dollar mutual funds have become the norm. When I worked for Fidelity in the early 1990's, the largest fund in the world at the time, the famous Fidelity Magellan, was around $25 billion. Even then, concerns had set in that it had become too large to outperform the market. Since then, Magellan's size has

ge. Over the last 25 years, multi-billion dollar mutual funds have become the norm. When I worked for Fidelity in the early 1990's, the largest fund in the world at the time, the famous Fidelity Magellan, was around $25 billion. Even then, concerns had set in that it had become too large to outperform the market. Since then, Magellan's size has, the famous Fidelity Magellan, was around $25 billion. Even then, concerns had set in that it had become too large to outperform the market. Since then, Magellan's size has been a deterrent. Like a large barge, meaningful changes in its trajectory take too long to implement. Of the funds with in excess of $5 billion, most of them track the S&P 500 minus their outsize fees because that is all they can do. Yet, even these large funds continue to charge the 12b-1 fee.

2) Certainly, if a fund is closed to new investors (which makes the fund easier to manage), the existing shareholders should be relieved of the 12b-1 fee. But, as of November 2003, when the House introduced HR 2420, 139 closed funds still levied the fee. The funds are charging a marketing expense for funds that no longer accept new investors. Huh? Like crack cocaine, fund management f