Study: 63 bps Good Plan Fee Benchmark

November 16, 2004 ( - A new study said 63 basis points or less is a "reasonable" standard for participants to pay annually in investment management fees.

A news release said the finding comes from the latest version of Invesmart’s Retirement Portfolio Cost Barometer, which is designed to help participants and plan sponsors judge the competitiveness of their manager’s fees. The latest finding compares to fees of 65 basis points or less measured by the Barometer in April.

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, in a news release. “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.”

Rossi noted in the announcement that the firm had found evidence of marginal fee increases of up to 1.25 basis points in some funds represented in the barometer, likely due to higher compliance and reporting costs. Those increases, however, had little effect on the overall investment management fee reductions.

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.

Following are the asset categories included in the barometer and the average investment management fees for each category, according to the news release:

  • Large Cap US Equity: 48 basis points
  • Small/Mid Cap US Equity: 95 bps
  • International Equity: 73 bps
  • US Fixed Income: 44 bps
  • Cash Alternatives/Ultra-short Term Bonds 45 bps.