Anatomy Of A Rip-Off: Morgan Stanley S&P 500 Index Fund
The for-profit mutual fund industry has never been known for looking after their mutual fund investors’ best interests, but every once in a while a product so terrible (even by industy standards) you just have to sit up and notice. Enter Morgan Stanley with an S&P 500 index fund so expensive it actually makes most actively-managed funds look cheap in comparison. Morgan Stanley’s S&P 500 fund comes in three share classes:
| Expense Ratio | Front Load | Deferred Load | |
| Class A | 0.58% | 5.5% | n/a |
| Class B | 1.34% | n/a | 5% |
| Class C | 1.33% | n/a | 1% |
Unjustifiable Fees
The actively-managed mutual fund crowd often justifies outrageous fees by the possibility that by skill or luck, investors have a chance to outperform the market averages. They rarely do, of course, but that’s the logic. This fund, on the other hand, doesn’t even have that feeble excuse. It’s an index fund, for crying out loud. It is destined to forever underperform its benchmark by the fees it charges. Why would anybody in their right mind pay a 5% load and a 0.58% expense ratio year in and year out when they can get an identical product from Vanguard that charges just 0.15% for year with no load? There must be a lot of mentally unhinged people out there because share class A currently has $958 million in assets.
Costs Matter
Index funds are commodity products: every S&P 500 index funds hold the same stocks in the same proportions as every other S&P 500 index fund. The only difference is the fees paid for the privilege of owning that particular basket of stocks. Thus, an index fund charging 0.15% is going to outperform an index fund charging 0.58% by the amount of the difference in their expense ratios. When buying the index, always go with the low-cost option. Using the Financial Industry Regulator Authority’s (FINRA) mutual fund expense analyzer, I’ve calculated the cost of owning Morgan Stanley’s S&P 500 Index Fund (SPIAX) versus the cost of owning Vanguard’s 500 Index Fund (VFINX). Assuming you invested $10,000 in each of these funds and left them there for 10 years, reinvesting all dividends and capital gains, here’s what you’d end up with.
| Fund Value After 10 Years | Total Fees | |
| Vanguard 500 | $25,551.60 | $248.48 |
| Morgan Stanley Class A | $23,057.01 | $1,499.34 |
| Morgan Stanley Class B | $22,913.27 | $1,835.60 |
| Morgan Stanley Class C | $22,593.38 | $2,132.93 |
As you can see, even the cheapest of Morgan Stanley’s fund classes charges over six times as much in fees as its Vanguard cousin, severely hampering returns and lining Morgan Stanley’s pockets at the expense of fund investors. Sensible investors pay close attention to expenses and buy inexpensive index funds from reputable firms like Vanguard or Fidelity.
Shame on Morgan Stanley.
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Amazing – I guess they are trying to cash in on the “etf” craze…
Mike
Thanks!! I fired my MS advisor last week and am doing my own thing, I feel liberated, and will be better off in the long run.
Dear Sir:
I would like to see how Morgan Stanley’s directors get in compensation. Their dividends to the common share stockholders in something line 5 cents a share. Before we have another Wall street problem, perhaps somebody will be a whisleblower and find out why the dividends are so poor. If their board of directors is taking a lot of money in fees, salaries & Stock options, we have a right to know. Under the freedom of information act, please publish the results on your website.
All of this information is already publicly-available in your fund’s annual report. You get it in the mail at the end of every fiscal year. You can probably also download it from Morgan Stanley’s website.