Data and Research

Sponsor Demand Dramatically Shapes Fund Fees

Institutional asset owners are increasingly skeptical of revenue sharing and are relentlessly pursuing lower fees within defined contribution plan investment menus. 

By John Manganaro editors@plansponsor.com | August 29, 2016
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Strategic Insight (SI), an Asset International company providing authenticated business intelligence and actionable insight for the asset management community, published a new study focused on implications of the Department of Labor (DOL) fiduciary rule, slated to take effect in 2017 and 2018.

According to SI, much of the recent growth in institutional pricing demand has come from fee-based advisory programs which have seen demand shift rapidly toward funds' lowest-cost available share classes, in anticipation of the new fiduciary paradigm. 

“No Load shares with zero 12b-1 fees accounted for 66% of total mutual fund sales within fee-based advisory programs during 2015, rising significantly from just 36% in 2009,” Dennis Bowden, Strategic Insight managing director of U.S. research, tells PLANSPONSOR. “At the same time, A-shares sold with the load waived but carrying typically 25 basis points of 12b-1 fees declined from 51% of total fee-based sales in 2009 to 27% in 2015.”

The findings come from SI's new report, “Fund Sales Benchmarking: 2016 Perspectives on Intermediary Sales by Share Class and Distribution Channel.” Bowden explains the study is based on SI's proprietary survey of 35 fund firms that distribute primarily through financial advisers. Survey participants managed in aggregate $5.2 trillion in U.S. open-end stock and bond fund assets as of the end of 2015, and reported over $1 trillion in overall fund sales during the year.

“A noteworthy impact of the DOL fiduciary rule will be an acceleration of the existing movement toward lowest-cost share classes,” Bowden adds. “We have already seen this trend increasingly eliminate the use of 12b-1 fees within fee-based accounts, but looking ahead, the potential for further 'institutionalization' of pricing demand is an important area to monitor.”

NEXT: Implications for DC sponsors and their advisers 

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