Even though most plans outperform their blended benchmark, the data show a correlation between higher fees and worse relative performance. And, looking at expense ratios across the various asset classes, it is clear that alternatives charge much higher fees than traditional asset classes such as public equities and fixed income. Finally, plans that underperformed their blended benchmark from 2011-2016 reported higher expense ratios than plans that outperformed their benchmark, particularly within alternative asset classes.
These initial findings suggest that investment fees – in particular, outsized fees on alternatives – may play a meaningful role in plan underperformance. Future research on the impact of fees would benefit from a longer timeframe that incorporates a full market cycle – which will be increasingly possible as the trend toward improved fee disclosure continues.
Center for Retirement Research