Administration May 23, 2017

Advice Linked to Retirement Readiness and Confidence

In addition to a heightened level of retirement readiness, Northwestern Mutual suggests Americans who work with advisers tend to feel more financially confident overall.
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Findings from the Northwestern Mutual Planning and Progress study show Americans who receive regular guidance from financial advisers feel markedly more prepared for retirement and other financial challenges, leading to far greater confidence.

According to the data shared by the firm, seven in 10 Americans with advisers say their retirement plan is designed to withstand market cycles, compared to 30% of those who do not use an adviser. At the same time, 49% of people without an adviser have taken no steps to address the possibility of outliving their savings—three times as many as those with an adviser (15%).

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“As people live longer, the economy continues to fluctuate, and health care and other costs increase, navigating retirement planning becomes more complex and overwhelming,” warns Rebekah Barsch, vice president planning, Northwestern Mutual. “Working with an adviser is like having an experienced guide map out an itinerary for your retirement journey that’s tailored to your unique lifestyle goals and circumstances.”

In addition to a heightened level of retirement readiness, Northwestern Mutual suggests Americans who work with advisers “tend to feel more financially confident overall.”

“Notably, individuals with financial advisers are almost twice as likely as those without to say they feel very financially secure, at 68% vs. 36%, respectively,” the research shows. “Additionally, more than three quarters (77%) view themselves as ‘highly disciplined’ or ‘disciplined’ planners compared to 41% of those without an adviser.”

Other findings show more than half (52%) of U.S. adults with advisers think the economy will be better this year than in 2016 compared to just 39% of those without advisers. Further, six in 10 people with advisers “believe that the American Dream is still attainable to most,” while only four in 10 of those without an adviser feel the same.

The full survey findings are available for download here. 

Investing May 23, 2017

Morningstar Reports Record Low in Fund Fees

The demand for low-cost passive funds is driving a downward trend in fees for mutual funds and ETFs, according to research by Morningstar.
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Investors paid lower fees for U.S. open-end mutual funds and exchange-traded funds (ETFs) in 2016 than ever before, according the latest analysis by independent investment research company Morningstar. The firm found that the asset-weighted average expense ratio across these funds, excluding money market funds and funds of funds, was 0.57% in 2016—marking a decrease from 0.61% in 2015 and 0.65% from three years ago.

Morningstar attributes this decline to investors’ growing demand for lower-cost funds, particularly passive funds and institutional share classes with lower fees. The firm also points to a growing shift in passive funds and a drawback from actively-managed funds. Morningstar reports that these low-cost mutual funds generally outperform their more expensive peers, and are seeing a sharp increase of inflows.

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The research team notes that annual flows into passive funds have doubled from about $200 billion in 2007 to more than $400 billion in 2016. Beginning in 2011, flows into passive funds outpaced flows into active funds every calendar year, despite the fact that active funds outnumber passive funds by eight to one. Morningstar also points out that “passive funds have also continued to be significantly cheaper than active funds costing investors an average 0.17% in 2016, 58 basis points less than active funds.”

However, the firm reports that the biggest flight from active funds has been seen in the most expensive ones; meanwhile, low-cost active funds saw “positive, albeit small inflows.” The most expensive active funds saw $369 billion in outflows between 2014 and 2016. The least expensive passive funds continue enjoying the biggest inflows each year.

In 2016, the asset-weighted average expense ratio for passive funds was 0.17%, compared with 0.75% for active funds. 

Among the largest fund managers, Vanguard has the lowest asset-weighted average expense ratio of 0.11%. Morningstar notes “Vanguard’s low-cost passive funds had a notable impact on the industry’s declining asset-weighted average expenses. From 2013 to 2016, the industry-wide asset-weighted average expense ratio fell from 0.65 percent to 0.57 percent. Excluding Vanguard, the expense ratio decline would have been less, from 0.69 percent to 0.62 percent.”

Following Vanguard are SPDR State Street Global Advisors with an asset-weighted average expense ratio of 0.19% and Dimensional Fund Advisors at 0.36%.

Morningstar says that “In this study, we used the asset-weighted average expense ratio instead of a simple average, or equal-weighted average, expense ratio. We feel an asset-weighted average is a better measure of the average cost borne by investors than a simple average, which can be skewed by a few outliers, such as high-cost funds that have low asset levels. In 2016, the simple average expense ratio for all funds was 1.14%, but funds with an expense ratio above that level held less than 10% of fund assets at the end of 2016.”

The full report ca be found at Morningstar.com.

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