The Securities and Exchange Commission’s investor advocate is making enhanced fee disclosure on the $16 trillion held in mutual funds a priority in the next fiscal year, according a biannual Report on Objectives released last week.

Established in 2014 under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Office of the Investor Advocate was created to provide a “voice for investors” and support the SEC’s Investor Advisory Committee, according to the agency’s website. Rick Fleming was appointed the first investor advocate, a position he continues to hold.

In his most recent report, Fleming cited an April 2016 report from Morningstar that said the overall fees on mutual funds and exchange-traded funds continues to trend downward.

But despite that trend — the average expense ratio was 61 basis points in 2015, down from 73 basis points five years ago — retirement savers may not be realizing those savings.

That’s because many of those cheaper mutual funds and exchange-traded funds are acquired through retirement platforms and investment advisors that charge a fee for managing assets, said Fleming in his report, citing Morningstar’s data.

The overall trend of lower investment fees is being driven by investor demand for cheaper, passively managed investments, such as index funds, and the “strong inflows” of retirement savings to cheaper institutional share classes of funds available to 401(k) participants, according to Fleming’s report.

Retirement platforms such as defined contribution plans, and fee-only registered investment advisors, “typically levy another layer of fees in addition to the cost of owning funds,” Morningstar’s April report said.

'A reason for concern'

Those fees have become “an increasingly important cost component” as more investors acquire mutual funds and exchange-traded funds through fee-based platforms and advisory services, according to language from Morningstar’s report cited by Fleming.

The investor advocate’s report did not document the exact proportion of all mutual funds and exchange-traded funds acquired through defined contribution plans or fee-based advisors.

Nor did it reference the U.S. Department of Labor’s fiduciary rule, which is expected to move more retirement savers into fee-based advisory accounts, as investments sold on commission will have to comply with the rule’s Best Interest Contract Exemption.

The Labor Department’s rule strongly favors fee-based advisory services, according to the vast majority of interpretations of the rule. In applying a flat fee for investment advice, as opposed to commissions charged on individual investment products, consumers will be protected from the potential for conflicted advice, which costs investors $17 billion annually in lost savings, according to data from the White House’s Council on Economic Advisors.

In his report, Fleming said, “it would seem that even as fund fees continue to trend downward, investors are not necessarily receiving the full benefit of lower fund expenses.”

And while that fact is “a reason for concern,” Fleming also noted that his office also recognizes the value investors derive from fee-based advisory services.

Mutual funds carry transactional costs and “ongoing” operational costs, such as marketing, fund management and custodial fees, that may not be specifically listed on investors’ account statements, but that are calculated into the cost of each fund share, Fleming said in his report.

“Even minor differences in fees from one fund to another can add up to substantial differences in investment returns over time,” he said.

“We believe that individual investors should be aware — or should be made aware — of the different types and layers of intermediary fees” associated with investments and retirement accounts, added Fleming in the report, which did not identify specific new disclosure requirements, but only said the Office of Investor Advocate will explore ways to improve fee disclosure in the coming year.