From this article at www.fa-mag.com:
The problem is, fund companies and financial advisers are stuck in an archaic business model that rewards the insiders at the expense of the investors––a claim Vanguard founder John Bogle has made for decades. That's why investors still must pay 12b-1 fees and even sales loads on funds recommended by financial advisors.
Mutual Fund expense ratios (ER) vary by a great degree from fund to fund. A fund with a 2% ER has no better chance of being successful that a fund with an ER of .2% (That's 1000% less). Why invest $10,000 in a fund that will take $200 in fees annually from you, when there is another fund that will charge you only $20 per year for essentially the same fund? An actively traded fund, as opposed to an index fund, has to pay a manager to make decisions on what stocks to buy and sell. An index fund manager does not have to make those decisions as his fund is already predetermined and trades (and expenses) are therefore minimal.
Six out of 10 actively managed stock mutual funds underperformed their corresponding indexes in 2008, according to the Center for Institutional Investment Management at the University at Albany––SUNY. And the center estimates that actively managed funds lost $42.7 billion in market value beyond the losses of the major indexes themselves.
Fees are the principal reason for this. Amazingly, though, expense ratios on actively managed funds are ready to rise, not fall.