Transaction costs are brokerage commissions plus the spread between the bid and ask price that funds pay each time they purchase stocks. To their discredit, the SEC and GAO also ignored these costs because they are not included in funds' expense ratios. It's not that the data aren't available. Around that time, funds turned over only about two-thirds of their portfolios each year. Funds with higher turnover or ones that trade in small-cap stocks have even higher transaction costs.
Funds also hide expenses by characterizing some fees as brokerage.
Funds pay what are known as soft dollars, which refer to the part of a commission in excess of the lowest possible rate. The excess pays for investment reports, Bloomberg terminals and other investment services that would normally be paid for by the fund's manager. And these services do not even have to benefit the fund whose brokerage paid for them. Soft dollars even pay for nonresearch services, such as custody of fund assets. Each of these costs would normally be included in the expense ratio and openly disclosed in funds' fee tables, but by paying for them with soft dollars, funds hide them from view and effectively remove them from consideration in so-called fee studies.