FASB Proposal Would Require Brokerage Costs in Expense Ratio
FASB has issued a Proposed Accounting Standards Update that would dramatically impact the presentation of fund expense information. The proposal would treat securities transaction costs and fees (including brokerage expenses) as an expense in net income rather than including them in the purchase/sale price. The result would be the inclusion of brokerage costs in a fund’s expense ratio. According to the Proposal, FASB believes that “transaction costs should be reflected as current period expenses rather than capitalized and deferred because such costs do not directly relate to the financial asset or liability’s fair value.”
OUR TAKE: The Proposal, if adopted, would have a significant impact on funds with high portfolio turnover ratios as compared to funds that pursue a buy-and-hold strategy.