Excessive Fees Vex Fund Investors

Mark Morganelli runs a jazz concert series. His wife Ellen Prior has an MBA. The Dobbs Ferry couple keeps a close eye on their finances, but, as CBS News Correspondent Anthony Mason reports, they have no idea what they pay in mutual fund fees every month.

"It's really embarrassing," they say.

They shouldn't be embarrassed says Mercer Bullard, founder of Fund Democracy. Bullard says, of all the scandals plaguing the fund industry, "fees are the biggest issue."

"The fees in the mutual fund sector are so exorbitant and so outrageous and so unjustified," says New York State Attorney General Eliot Spitzer.

Spitzer estimates American investors pay $70 billion in annual fees to mutual funds - at least $15 billion more than they should be paying.

"Those fees should be dramatically reduced," says Spitzer.

Under pressure, Putnam Investments, the 6th-largest fund group, agreed this week to cut its fees and provide clearer fee information.

But most investors still can't be sure what exactly their fees are for. While public companies reveal what top executives are paid, mutual funds are not required to tell you what they pay the person who manages your money.

A fund's annual prospectus does include an expense ratio: a percentage they charge you for administrative and accounting costs.

"What you're not seeing in the expense ratio is what the fund pays every time it buys or sells stocks," says Bullard. "In some cases you'll find that can be five or six times the entire expenses of the fund."

"It's sleazy," says Prior.

Investors like Prior and Morganelli feel deceived.

"Your money is being siphoned off," says Morganelli. "It's kind of painless because you don't know that it's happening to you, but you're still a victim."

That's why regulators are saying it's time for the fund industry to change its tune.