Vanguard seems to have timed it right. Despite the surprising news in recent weeks that the Pennsylvania-based investment behemoth was referenced (but not a target) in an excessive 401(k) fee lawsuit filed against health care provider Anthem, the firm claimed on Thursday that it has saved Vanguard clients a total of nearly $75 million in 2015 as a result of lower expense ratios in its mutual funds, including Vanguard target-date funds.
“We strongly believe in setting our investors up for success, and one of the best ways to do that is to keep the cost of investing low, enabling them to keep more of what they earn,” Vanguard CEO Bill McNabb said in a statement. “The compounding effect of high costs is especially corrosive to the returns of retirement investors—those saving over 30 to 40 years in a 401(k) plan or through an IRA. As a result, low costs, along with high savings rates, are critical to the retirement readiness of millions of Americans.”
Specifically, the $22.7 billion Vanguard Target Retirement 2035 Fund reported an expense ratio reduction of 3 basis points, while the remainder of the series of 12 Vanguard Target-Retirement Funds reported reductions of 2 basis points. The expense ratios now range from 0.14 percent to 0.16 percent, which the company claims are among the lowest available to individual investors seeking a target-date option.
Vanguard reports that it has seen a broad adoption of target-date strategies, particularly among company retirement plan sponsors and participants. Some 88 percent of plan sponsors offered target-date funds at the end of 2014 (up 17 percent compared with year-end 2009), and 64 percent of all participants use target-date funds (Source: How America Saves 2015).
Vanguard claims it is now the largest manager of target-date fund assets in the industry, “as investors have gravitated to the company’s low-cost, index-based approach.”
Vanguard manages nearly $358 billion of target-date assets and experienced more than $56 billion cash flow into its target date mutual funds and collective trusts in 2015.
According to Morningstar, Vanguard led the category in target-date mutual fund flows with nearly $37 billion in 2015, bringing the firm’s total target-date mutual fund assets to $225 billion.
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.
