The spate of recent fee reductions by investment firms could cause difficulties for defined contribution plan fiduciaries.
While the fee reductions and eliminations at present mostly apply only to retail trades, especially index funds and exchange-traded funds, they could cause defined contribution plan participants to ask more questions about the fees they are paying in their plans.
In July and August alone, Fidelity Investments, Vanguard Group Inc. and Charles Schwab Corp. all announced fee cuts for retail investors.
Fidelity announced two free indexed mutual funds for retail investors. But it also made changes in the share class structures of all of its index funds, which cut the expense ratio for many institutional investors.
Meanwhile, Vanguard expanded the number of exchange-traded funds available to its retail brokerage clients with commission-free online transactions to almost 1,800. Charles Schwab added 11 commission-free ETFs to the 254 it already had on its OneSource platform.
Other institutions are unlikely to be able to resist the trend toward lower fees, especially if they wish to keep their retail clients, and the pressure to lower costs is likely to bleed over into the defined contribution world.
Investors who experience lower costs in their non-retirement investment portfolios are likely to ask questions about the costs embedded in their retirement plan portfolios.
Defined contribution plan fiduciaries should be paying close attention to the lower fee trend, asking for more information from their managers and administrators about the fees their plans are paying, and preparing to answer questions from plan participants.
It's only prudent.
