The country's largest retirement asset managers are re-tooling their product offerings in light of regulators', sponsors', and consumers' heightened fee consciousness, according to new data from Cerulli Associates.
The Boston-based financial services research firm reviewed the 50 largest asset managers' fund offerings by share class and found 470 new institutional class funds and 379 new retirement share funds in 2014, the two share classes that boasted the most new product offerings.
Both share classes are known for their low cost to defined contribution investors.
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Of the 50 largest asset managers, 60 percent said they plan to make some sort of modification to their share class offerings.
Of those with such intentions, 24 percent said they plan to add R6 shares, or other zero-revenue share class funds, and another 24 percent plan to move away from shares with higher 12b-1 fees, from which fund sponsors can pay sub-advisors.
R6-share class funds now hold 37.2 percent of total retirement share class assets, about double from what they did in 2011.
That phenomenon is in direct reaction to sponsors' demand to separate a fund's cost from the revenue it creates, after a decade's worth of revenue-sharing claims against large plan sponsors has highlighted the slippery slope such agreements create for fiduciaries.
The rise of retirement shares and R6 shares is also in response to sponsors' wider use of Collective Investment Trusts, the mutual-fund like institutional funds that come with appreciably lower costs than traditional mutual funds, because they are not regulated by the Securities and Exchange Commission and have fewer disclosure requirements and costs.
As sponsor awareness of plan costs has grown in the past several years, money poured into the low-cost CITs. Morningstar says they held $1.2 trillion in intuitional retirement assets by the end of 2013. In 2014, 60 percent of plans offered a CIT.
That trend clearly put fund companies on their heels. CITs are issued by banks, or bank trust companies, and not fund companies, and present a direct competitive threat to traditional money mangers.
Last month Goldman Sachs Asset Management was one of the latest fund managers to mount an R6 defense against CITs' continued threat to traditional asset companies.
Goldman said it would be launching R6 share versions on 54 of its proprietary mutual funds.
Expense ratios will be lower than those available on Goldman's current stock of institutional share class options.
"The R6 shares will not pay any form of intermediary compensation," the company said in a statement, including 12b-1, distribution, service, sub-TA or any other fees.
J.P. Morgan, Neuberger Berman, Franklin Templeton and MainStay Investments are among other asset managers that have added R6 shares in the past years.
Plan sponsors growing focus on "cost and transparency" motivated the product rollout from Goldman, according to a company release.
Cerulli sees the movement to R6 shares and the growth of other institutional options that separate revenue-sharing costs from the actual fees to investors as part of an overall refining of fund company options.
Ultimately, the "shake-out" of share classes will leave four options for investors, according to Cerulli: institutional share class, a share class for retail investors, a 12b-1-share class, and a bare-boned retirement share class.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
