Mutual funds have enjoyed phenomenal growth with their numbers exceeding the number of public companies and their assets aggregating in excess of $9 trillion. Increasingly they are the investment instrument of choice by the proverbial widows, widowers and orphans, and a few school teachers are included as well. But how are best can that choice be one that is not only informed but informed in a way more likely to elicit a wise decision? This paper examines from a behavioral perspective how regulation can best disclose information related to two key factors for investors to compare competing mutual funds: fund returns and fund expenses. Our analysis reflects that the current disclosure process is deficient because it fails to reflect the insights of research on judgment and decision making, and particularly the need to distinguish between the availability of information and its processability by its user. The message of our article is straightforward: if regulators adhered to the insights provided by our paper, not only investors, but also the fund's directors, would be greatly empowered so that better returns and lower costs could be expected.
James D. Cox & John W. Payne, Mutual Fund Expense Disclosures: A Behavioral Perspective, 83 Washington University Law Quarterly 907-938 (2005)