Investmart has put a figure on “reasonable” annual investment management fees: 63bps.
The latest reading of Invesmart’s Retirement Portfolio Cost Barometer, which is designed to help participants and plan sponsors judge the competitiveness of their manager’s fees, is down from a “reasonable” fee of 65 basis points or less measured by the Barometer in April. Per asset category, “reasonable” fees came in at 48 bps for large cap US equity funds, 95 bps for small/mid cap US cap funds, 73 bps for international equity funds, 44bps for US fixed-income funds and 45 bps for cash alternatives/ultra-short term bond funds.
The largest fee decreases were in the international equity and fixed income funds represented in the barometer, which decreased 14% and 12% respectively since April 2004.
“We’re pleased to see these fee reductions in many of the funds we analyzed,” said Rob Rossi, Director of Investment Research for Invesmart. “We hope this is reflective of what the industry is attempting to do across the board to bring down its expense structure. While a three percent fee reduction is less than we’d like over time, it’s significant in that it tells us that fees are headed in the right direction.”
To calculate the Retirement Portfolio Cost Barometer, Invesmart considered the investment management fees of 66 institutional quality mutual funds selected from a universe of 3,000 funds representing 150 fund families. The investment management fees were calculated by netting from the fund expense ratio the revenue sharing for service and marketing available in the funds in the form of finder’s fees, 12b-1 fees, dealer concessions, shareholder servicing reimbursements and sub-transfer agent arrangements.