The average institutional share fee for target-date mutual funds dropped to 72 basis points in 2011 from 75 basis points a year earlier, according to retirement plan research firm BrightScope.
The decline in fees is because of competition within the industry, the recent addition of some index-based target-date funds and the presence of Vanguard Group as a longtime low-fee provider, Brooks Herman, head of research at BrightScope, said in an interview.
“Vanguard has attracted a lot of attention, and we have seen new entries trying to compete,” Mr. Herman said.
The average Vanguard target-date series fee is 18 basis points, tied with the TIAA-CREF Lifecycle Index target-date series, for the lowest-fee products among the 49 fund families from 41 different companies studied by BrightScope, Mr. Herman said.
The Fidelity Freedom Index target-date series was next lowest with a fee of 19 basis points.
BrightScope analyzed fees for institutional shares of mutual funds. It doesn't examine custom target-date funds, collective trusts or separate accounts. The average institutional fee for 2008 was 80 basis points, said Mr. Herman, adding that his firm didn't calculate fee figures in 2009.
New Labor Department fee-disclosure regulations should create pressure to lower fees, Eddie Alfred, BrightScope vice president for data and research, said in the same interview. “People who can't come down in fees might be forced out,” he said.
Disclosure regulations governing providers and sponsors began on July 1; regulations covering sponsors and participants take effect Aug. 30.
Mr. Alfred added that “non-traditional” asset classes such as TIPS and commodities are making gains among target-date fund allocations. On an asset-weighted basis, these asset classes represented 7.2% of target-date fund holdings last year, compared to 7.1% in 2010 and 4.5% in 2009, he said.
