Strategic complexity in investment management fee disclosures

Abstract

This article develops a measure of complexity of fee disclosures, based on previous work assessing the grade level of language, and validates that measure through a survey where students are asked to independently rate the complexity of fee disclosures. In addition, the article hypothesizes that high fee providers are more likely to engage in strategic complexity in fee disclosures than are low fee providers. We hypothesize that high fee providers use strategic complexity to take advantage of the lack of financial sophistication of many people, making it difficult for them to compare fees across service providers and to understand the level of fees they are paying.