Following a long-running trend, the average fees that 401(k)
participants incurred for investing in equity, hybrid and bond mutual funds
dropped in 2016 for the seventh straight year, according to the latest study by
the Investment Company Institute.
Morningstar also recently reported record
low fees for U.S. open-end mutual funds.
The ICI study found that for equity mutual funds, 401(k)
plan participants incurred an average expense ratio of 0.48 %, compared to 0.51
% in 2015. The average expense ratio that 401(k) plan participants incurred for
investing in hybrid mutual funds fell to 0.53 % in 2016, from 0.54 % in 2015.
And the average expense ratio that 401(k) plan participants incurred for
investing in bond mutual funds fell to 0.35 % in 2016, from 0.38 % in 2015.
The same study also concluded that people invested in mutual
funds through 401(k) plans generally hold lower-cost funds. Mutual funds take
up a major portion of the 401(k) investment world accounting for nearly $3
trillion of the $4.8 trillion in plan assets as of year-end 2016, the ICI
finds.
This is important to plan sponsors considering the industry’s
heightened scrutiny of fees which have been center stage in recent litigation
involving retirement plans. The Department of Labor (DOL)’s fiduciary
rule undoubtedly puts an even stronger focus on fees when it comes
to advisers recommending funds for sponsors to include in 401(k) plans.
However, fees seem to have been following a downward trend for more than a
decade.
The ICI finds that since 2000, expense ratios that 401(k)
plan participants incurred for investing in these funds have decreased 36%.
“This downward trajectory, which is a boon to retirement
savers, is driven by competition among funds and investors’ keen awareness of
fees, among other factors,” says Sean Collins, ICI’s senior director of
industry and financial analysis.”
ICI uses asset-weighted average expense ratios to represent
the price to invest in these funds.
“The Economics of Providing 401(k) Plans: Services, Fees, and
Expenses, 2016” can be found at ICI.org.
More information about fees in defined contribution (DC) plans can be found in
the BrightScope/ICI
Defined Contribution Plan Profile.
Brightscope is part of Strategic Insight, the parent company
of PLANSPONSOR.
This year, the first wave of Baby Boomers with
tax-deferred retirement accounts will become required minimum distribution (RMD) age. Beginning in 2018, millions of
Americans will be taking RMDs from these accounts each year.
To facilitate this process, Fidelity Investments has
launched the Fidelity Simplicity RMD Funds. These mutual funds combine professionally-managed
investment strategies with optional automated calculation and distribution
methods to satisfy annual RMD requirements on the investor’s behalf. Each fund
in the lineup carries a date in five-year intervals from 2005 to 2020 to help
investors find an appropriate fund to reflect the time they turn 70. Initial
RMDs are required to be taken once an investor turns 70-and-one-half.
These funds are designed for investors who are nearing this
age or older, or will turn age 70 in or within a few years of the applicable
fund, and plan to withdraw the value of their investment in the fund over time
in accordance with Internal Revenue Service (IRS) rules. For example, a traditional IRA owner who turned
70 ½ in 2015 would select the Simplicity RMD 2015 Fund.
By signing up, Fidelity
automatically calculates and distributes the investor’s RMD each year, while monitoring
withdrawal activity and assisting with reinvesting or managing spending.
The Fidelity Simplicity RMD Funds with longer time horizons
will invest in a greater percentage of equities, while the funds with shorter
time horizons will emphasize fixed-income and short-term assets.
“The foundation of the funds is the glide path, built to
balance investment returns and risk in conjunction with an RMD,” says Andrew
Dierdorf, portfolio manager on Fidelity’s target date team, including Fidelity
Simplicity RMD Funds. “The glide path for the Simplicity RMD Funds has been
designed to provide appropriate portfolio diversification over time, while
recognizing the unique needs and time horizon for investors who begin taking
RMDs at age 70 ½.”
Ken Hevert, senior vice president of Retirement at Fidelity
Investments adds, “Retirees often struggle to understand when, which assets,
what amount and how to take the annually mandated withdrawal from their
tax-deferred retirement accounts. If not done correctly, investors may
experience a 50% tax penalty on any amount not withdrawn by the annual
deadline.”
“Further, once the RMD has been made, investors find
themselves unsure of whether or not they are being too conservative or too
aggressive with the remaining investments. The Fidelity Simplicity RMD Funds
complement our suite of automatic RMD services, and will provide a simple and
innovative solution for investors to help alleviate many of the concerns around
taking annual RMDs.”
TIAA’s Nuveen adds to its line of NuShares ESG ETFs two
new offerings focusing on international developed markets and emerging markets.
Nuveen has launched two new exchange-traded funds (ETFs)
tracking indices based on environmental, social and governance (ESG)
criteria. The NuShares ESG International Developed Markets Equity ETF, and
NuShares ESG Emerging Markets Equity ETF seek to track the investment
performance of the TIAA ESG International Developed Markets Equity Index and the
TIAA ESG Emerging Markets Equity Index, respectively.
“As we designed our latest ETF offering, we wanted to
squarely address investors’ desire to diversify their core equity portfolio
with investment options that not only provide key benchmark exposure, but also
align their international equity investments with their values,” says Martin
Kremenstein, senior managing director and head of Exchange-Traded Funds at
Nuveen. “To date, there have been limited ETF solutions for investors who value
ESG principles, yet want to assemble a full equity asset allocation framework.
When taken as a whole, our growing suite of ESG ETFs addresses this need.”
These funds add to Nuveen’sline of NuShares ESG ETfs. Like the NuShares domestic equity ESG ETF, these
new funds will draw from investment expertise of TIAA Investments.
“We’ve certainly seen that investor motivations for adopting
responsible investment approaches to managing their money are on the rise,”
says Amy O’Brien, managing director and head of Responsible Investment at TIAA
Investments. "Investors large and small are beginning to understand that the
integration of environmental, social and governance factors within their
investment portfolios actually has the potential to reduce risk and enhance
long-term investment performance. Those advisers and consultants who can assist
their clients in evaluating the significant differences among available ESG
products and strategies in order to select those that are an appropriate fit,
will prove themselves to be invaluable.”
NEXT: Duetsche Launches
U.S. Multi-Factor Fund
Duetsche
Launches U.S. Multi-Factor Fund
Deutsche
Asset Management has launched its new Deutsche US Multi-Factor Fund. This
mutual fund tracks the Russell 1000 Comprehensive Factor Index, which is
designed to capture exposure to large-cap U.S. equities using five factors:
quality, value, momentum, low volatility and size. The fund seeks exposure to
the universe of stocks in the U.S. equity market, while titling individual
weights towards those proficient in all five factors.
“Our
goal at Deutsche Asset Management is to provide clients with flexible access to
products and solutions across a wide range of investment opportunities,” says
Brian Binder, president of Deutsche Funds and head of US Product & Fund
Administration. “Through deliberate, consistent and direct factor exposure, the
Deutsche US Multi-Factor Fund’s objective is to potentially make a significant
contribution to outperforming traditional market-capitalization weighted
benchmark indices, while lowering risk possibilities and adding diversification
to the portfolio.”
Fiona
Bassett, head of Passive Asset Management, Americas, says, “In our view, factor
investing straddles the intersection of active and passive asset management. The
new fund complements Deutsche Asset Management’s existing suite of products and
showcases our ability to deliver the unique factor-based approach via an index
fund to a broader scope of investors.”
NEXT:TFC Launches ESG
Investment Strategy
TFC Launches ESG
Investment Strategy
TFC Financial Management has launched itsSustainable and Responsible Investment
Strategy (SRI).
The firm defines this method as an investment approach that
considers environmental, social and governance (ESG) factors to achieve
competitive long-term investment results and positive social impact.
Clients
would typically have core holdings in sustainable
mutual funds aiming for broad diversification and a low carbon
footprint. These
core holdings will focus on companies with favorable ESG attributes,
while minimizing holdings with less favorable attributes. The
firm may also supplement core investments with investments in which
there are
fewer sustainable options, and will incorporate impact investments that
focus
on mission-related social or environmental priorities.
“We tailor the impact investment portion of the portfolio
based on the priorities of our clients, so environmentally focused clients may
have different impact investments than clients who are focused on issues such
as affordable housing or diversity,” says TFC Chief Investment Officer Daniel
Kern, CFA.
TFC Chief Executive Officer Renée Kwok adds, “Our clients,
their families and prospective clients are increasingly expressing interest in
SRI and their desire to have investment portfolios be more aligned with their
personal values and social impact priorities. We are pleased to be able to
offer this strategy, designed to provide long term investment returns as well
as positive social and environmental impact, as both dimensions are important
to these clients.”