Retirement Plans Driving Wider R6 Share Offerings

Institutional investors, including employer-sponsored retirement plans, are generating significant demand for inexpensive and transparent investment vehicles. 

By John Manganaro | August 23, 2016
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A recent Cerulli Associates survey finds investment firms expect to see the biggest increase in use of I-shares, R6-shares, and “platform/wrap share classes.”

According to the latest issues of The Cerulli Edge U.S. Monthly Product Trends Edition, mutual funds endured outflows of $9.8 billion during July, marking the second straight month of outflows. Despite that, Cerulli data shows capital market performance was strong enough to propel asset growth to 2.5%, ending the month at $12.5 trillion.

“After tepid growth in May and June, ETF assets jumped 5.5% in July, to finish the month at $2.36 trillion,” Cerulli explains. “While global market performance was a key driver, massive July flows of $45.9 billion were also a contributor.”

One clear overall theme continuing this year has been the shift in assets to lower-cost share class offerings. Firms expect to see the biggest increase in use of I-shares, R6-shares, and/or a platform/wrap share class—64%, 55%, and 50%, respectively. Additionally, financial advisers report that while 23% of their 2015 practice sales came in A-shares, they expect to substantially increase their use of platform and institutional share classes this year and beyond.

“Amid a persisting trend toward lower cost and more transparent share classes, as well as the recent Department of Labor (DOL) Conflict of Interest Rule, the R6 share, which typically has no revenue sharing (e.g., 12b-1 fee, sub-TA fee), has witnessed significant asset growth,” Cerulli says. “Moreover, the low-cost and transparent attributes of the share class resonates with DC plan sponsors to the point that 64% of asset managers view large DC plans as the most popular channel for the R6-share class.”

NEXT: A positive trend for individual investors, too