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.