How much further can they fall?
Fees associated with equity mutual funds in 401(k) plans fell again in 2015. It’s marks a 31 percent decline since 2000, according to research from the Investment Company Institute (ICI) released Friday.
The study, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2015,” also confirmed prior ICI research that shows participants who invest in mutual funds in their 401(k) plans tend to hold lower-cost funds.
Long-Term Trend of Declining Mutual Fund Expenses Continued in 2015
According to a separate ICI survey, mutual funds are “a vital component of the 401(k) investment landscape, comprising 60 percent of the $4.7 trillion in 401(k) plan assets at year-end 2015.”
The average expense ratios that 401(k) plan participants incurred for investing in equity, hybrid, and bond funds fell in 2015 for the sixth straight year. For equity funds, 401(k) plan participants incurred an average expense ratio of 0.53 percent, compared to 0.54 percent in 2014. The average expense ratio that 401(k) plan participants incurred for investing in hybrid funds fell to 0.54 percent in 2015, compared to 0.55 percent in 2014. And the average expense ratio that 401(k) plan participants incurred for investing in bond mutual funds fell to 0.38 percent in 2015, from 0.43 percent in 2014.
“The data underscore the significant trend of declining fees since 2000 that 401(k) plan participants have paid to invest in mutual funds,” Sean Collins, senior director of industry and financial analysis with Washington-based ICI, said in a statement. “There is a vibrant and competitive market for investors to shop among mutual funds and other investment products, which has fueled the trend in declining fees to the benefit of investors.”
401(k) Plan Participants’ Mutual Fund Assets Are Concentrated in Lower-Cost Funds
ICI, like other providers of mutual fund data, uses asset-weighted average expense ratios to measure the expense ratios that mutual fund investors actually incur for investing in mutual funds. A different measure, the simple average expense ratio, merely measures the average expense ratio of all funds offered for sale. A simple average can overstate what investors actually paid because it fails to reflect the fact that investors tend to concentrate their holdings in lower-cost funds.
In 2015, 401(k) plan participants incurred an asset-weighted average expense ratio of 0.53 percent for equity funds, which was less than the asset-weighted average expense ratio of 0.68 percent incurred by all investors in equity funds. Further, this was less than half the industry-wide simple average of 1.31 percent for all equity funds offered in the United States in 2015.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
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