Why Do Money Fund Managers Voluntarily Waive Their Fees?

Abstract

Over half of money fund managers voluntarily waive fees they have a contractual right to claim. Moreover, as a consequence of fee waivers, funds on average collect one half of reported expense ratios. Variation in fee waivers is significant and relates to differences in relative performance. Both low‐performing retail and institutional funds waive fees to improve their net performance. More interestingly, high‐performing retail, but not institutional, funds use fee waivers to strategically adjust net performance to increase expected fund flows. Despite fund flow incentives, high‐performing institutional funds do not waive more because they cannot significantly improve their relative performance.