What are 'Acquired Fund Fees and Expenses - AFFE'

Acquired fund fees and expenses (AFFE) are a line item in a multi-manager or fund-of-funds prospectus that shows the operating expenses of the underlying funds. This became a requirement as of January 2007. This line item is included with the fund’s fee schedule under the "fees and expenses" heading.

BREAKING DOWN 'Acquired Fund Fees and Expenses - AFFE'

Acquired fund fees and expenses are associated with multi-manager and fund-of-funds options that have more complex fee structures. These fees increase the total annual expenses of a fund and include management fees paid to multiple managers.

SEC Regulation

In January 2007 the Securities and Exchange Commission (SEC) began instituting new provisions to the Investment Company Act of 1940, which made it easier for fund companies to register fund-of-funds options. The SEC broadened legislation under Section 12(d)(1) of the 1940 Act for multi-manager funds. The SEC also revised its registration statement forms to include additional detail on the expenses for these funds. Specifically, registration statements now require that fund managers include "acquired fund fees and expenses" as an added fee disclosure requirement for multi-managers, which must be included in the comprehensive fee schedule found in the prospectus.

Prior to 2007, fund-of-funds investing was only allowed under specific circumstances approved by the SEC. In most instances these fund-of-funds investments would report expense ratios of zero. Disclosure was misleading, presenting that there were no expenses and reporting that there would be operating expenses incurred by the various underlying funds in the portfolio.

The new AFFE requirements now provide for more transparent disclosure of the combined relationships and expenses incurred by shareholders. The AFFE line item is added to a fund's fee schedule and is in addition to other standard expenses of a fund. AFFE is established as a comprehensive fee made up of the individual fees the investment advisor agrees to pay to the multi-managers. AFFE can range from 0.02% to 10% depending on the agreements with individual managers.

Neuberger Berman Absolute Return Multi-Manager Fund

The Neuberger Berman Absolute Return Multi-Manager Fund provides one example of the fee structuring found in multi-manager funds. The Fund is an open-end mutual fund offering Class A, Class C and institutional shares.

Standard fees apply to the fund with management fees ranging from 1.92% to 1.81% across share classes. Distribution fees are charged for the Class A and Class C shares at 0.25% and 1.00%, respectively, with no distribution fee for institutional shares. Total other operating expenses range from 1.04% to 1.02%. Acquired fund fees and expenses round out the last fee expense line item for the Fund, with all share classes paying a 0.05% fee. Total annual expenses with waivers range from 3.94% to 2.83%.

RELATED TERMS
  1. Total Annual Fund Operating Expenses

    Total annual fund operating expenses are a fund's costs, such ...
  2. Service Shares

    Service shares are shares of a mutual fund that charge an extra ...
  3. Multiple Managers

    Multiple managers refers to the multiple involvement of different ...
  4. Performance Fee

    A performance fee is a payment made to an investment manager ...
  5. Fee

    A fee is a fixed price charged for a specific service and is ...
  6. Hidden Load

    A hidden load is an undisclosed fee or sales charge, which is ...
Related Articles
  1. Investing

    Mutual funds: Management fees versus MER

    Having a clear understanding of the fees charged by a mutual fund is a significant component to making an informed investment decision.
  2. Financial Advisor

    How Mutual Fund Companies Make Money

    Read about the many different kinds of fees and sales charges mutual fund companies can use to generate revenue from those who invest in their shares.
  3. Investing

    8 Investing Fees That You Should Never Pay

    In investment management and financial planning there are a plethora of fees that are unnecessary.
  4. Investing

    A Guide to Investor Fees

    Fees are one of the most important determinants of investment performance and something every investor should be aware of.
  5. Investing

    Are Hidden Fees Eroding Your Participants’ Return?

    Plan sponsors need to know the fees associated with their plan to determine if they are reasonable.
  6. Investing

    ETFs: Exploring Expenses in 2016 (BLK, ITOT)

    Take a good look at the latest trends in ETF costs. While passively managed funds have become less expensive, actively managed funds have not.
  7. Investing

    If You Invest in Mutual Funds, Read This

    If you invest in mutual funds, you may be paying investment expenses that don't appear on your statement.
  8. Tech

    Are Financial Advisor Fees Too High?

    Fees charged by financial advisors run the gamut. Are you getting a fair deal or paying too much?
  9. Trading

    Fund Costs and Expenses

    How much a fund charges for its services is the most important indicator of how well it will perform.
RELATED FAQS
  1. What are typical trust fund management fees?

    Learn about trust fund management fees, such as the annual management fee, annual expense ratio, brokerage commissions, and ... Read Answer >>
  2. What kinds of fees are involved in futures trading?

    Learn what the various costs are that are charged by brokerage firms and trading exchanges to individual futures trading ... Read Answer >>
Hot Definitions
  1. Futures Contract

    An agreement to buy or sell the underlying commodity or asset at a specific price at a future date.
  2. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  3. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  4. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  5. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  6. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
Trading Center