In its latest annual fund fee study the Investment Company Institute (ICI) asserted that the 2006 fee decline continued a trend it claimed dates back to at least 1980. According to an ICI news release , researchers claimed the fee decline has been most pronounced among stock and bond funds for which fees and expenses paid by investors have dropped by more than 50% since 1980.
According to the ICI report, stock fund investors on average paid 107 basis points in fees and expenses in 2006, a drop of 4 basis points from the year before, while bond fund fees and expenses fell to 83 basis points in 2006, a decline of 5 basis points. ICI also said the inclusion of funds of funds would have little effect on either the level or trend in the average expense ratio of stock funds.
According to the news release, ICI also claimed:
- Of the total assets held in stock funds, 90% are in funds with below-average expense ratios.
- In 2006, the average maximum sales load on stock funds was 5.28%, but the average sales loads investors actually paid was just 1.31%, owing to load discounts on large purchases and waivers on purchases through 401(k) plans.
- Over the past five years, the average expense ratio of stock funds has dropped 11 basis points.
- Investors’ preferences for low-cost mutual funds are reflected in their purchases of both actively managed and index mutual funds, according to ICI. For example, during the 10-year period from 1997 to 2006, 90% of investors’ new purchases of stock funds went to those funds whose expense ratios were below the average expense ratio of stock funds offered in the marketplace.
ICI said the report combined one-time sales loads and ongoing expenses into a single measure of fund ownership costs. The group added a fund’s annual expense ratio to an estimate of the annualized cost that investors pay for onetime sales loads.
A copy of the study results is here .
The latest ICI fee study comes as the level of plan fees remains a hot button topic across the retirement services industry, having drawn attention in Congress, before regulators and in the courts with a raft of lawsuits claiming 401(k) plan fees are too high and that plan sponsors have not done enough to get participants a better deal from the fund companies.
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