Technology has enabled investment managers to do their job more efficiently — allowing them to select investments, build portfolios and provide all the necessary reporting information to plan sponsors. “They do all of that digitally, so there’s [virtually] no interaction with the customers. There is, but only to a very small extent,” says Craig Howell, vice president of business development at Ubiquity Retirement + Savings.

Along with technology, consumers are more educated about retirement costs — and both factors are reducing the costs associated with retirement plans — which in turn are seeing exchange-traded funds grow in popularity, industry experts say.

Ubiquity outsources its investment management for about 25 basis points, but competitors are beginning to make offers of 5 to 10 basis points, Howell says. “On the asset side, I can’t affect the cost of the ETF. That’s up to the Vanguards and the Fidelitys and the BlackRocks of the world to set the pricing for their ETF expense ratios and their mutual funds,” he says. “But that 3(38) service in trading, we see that pretty much going to zero.”

Technology isn’t the only factor driving price reduction — better informed consumers are also impacting retirement costs. “It’s twofold,” Howell says. “Technology, No. 1, is allowing us to deliver the services more efficiently and secondly, consumers know a little bit more about what they’re paying.” They understand what indexing is and are more conscious of their costs, Howell says.

“Consumers are just more … educated now, more discerning when it comes to asset charges than they were say five or 10 years ago,” he says. “As consumers become more sensitive to asset-based pricing, they start asking the right questions and really getting to the bottom of what 401(k) plans can cost.”

Recordkeeping costs down

Technology has also resulted in a decreased cost of recordkeeping by reducing the number of people involved and demystifying the process, says Mike Alfred, co-founder and CEO of financial information company BrightScope. Competition and consolidation are also driving prices down, he says. In recent years, MassMutual acquired The Hartford’s Retirement Plan business, Great-West Financial acquired J.P. Morgan Retirement Plan Services and Transamerica bought Mercer’s U.S. defined contribution book.

Furthermore, technology has helped boost consumer knowledge, says Tim Slavin, senior vice president, defined contribution, at Broadridge Financial Solutions. Instead of waiting to view the stocks in the next day’s newspaper, consumers today can stream real-time updates, he says, and that access helps drive engagement.

Thanks to the availability of data — BrightScope recently released its seventh annual listing of the top 30 401(k) plans — and comparison tools, consumers are more aware about the true value of services, Alfred says. Before retirement fee data was available, participants couldn’t figure out how expensive their plans were, he says.

In the years since BrightScope first published those numbers, on average, investment management fees are coming down across all plan sizes and asset classes, Alfred says. Recordkeeping costs are dropping, too. “Availability of data definitely puts pressure on pricing,” he says.

ETFs gaining popularity

Howell, who works with start-up plans with zero assets, sees a lot of clients gravitating toward exchange-traded funds. The benefits of ETFs include:

1) Transparency of investments.

2) Pricing. “The expense ratios of ETFs, generally speaking, are less than actively managed mutual funds,” he says.

3) Intraday trading.

The first two advantages make ETFs an attractive option for 401(k) investors, Howell says. “When you compare an ETF to a classically managed active mutual fund, you’re obviously going to have much better transparency and much lower pricing,” he says. “As investors adopt ETFs, and as they become more aware of what investment management and 3(38) services cost, I just don’t see how that’s not going to result in continued pressure a little bit further up market. In the 401(k) business, I don’t see how you can be oblivious to the threat that ETFs pose to traditional active-managed mutual funds.” 

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