Mutual Fund Expenses Can Cut Into Investors’ Retirement Savings

How people invest during their working years can have a big impact on how much they accumulate for retirement. For example, when leaving a job, workers may have to decide whether to leave their savings in an employer-sponsored retirement plan such as a 401(k) or roll it into an individual retirement account (IRA). But they often make these decisions without a good sense of the fees charged by the companies managing the funds, costs generally tied to the type of shares workers own.

Mutual funds have share classes that charge different amounts depending on how they are sold to each type of investor, particularly whether the shares are held by individuals using their own savings—retail investors—or institutions investing on behalf of others. Institutional investors, including employer-sponsored retirement plans, can leverage their purchasing power to access lower fee shares.

In a recent issue brief, “Small Differences in Mutual Fund Fees Can Cut Billions From Americans’ Retirement Savings,” The Pew Charitable Trusts calculated the differences between median institutional and retail share class expense ratios across all mutual funds that offered at least one institutional share and at least one retail share in 2019. The expense ratio represents the annual expense to shareholders as a percentage of the value of the assets held. Based on those calculations, the brief illustrates the potential costs to retirement savings for those who roll their assets from a workplace 401(k) into an IRA.

This scorecard identifies the most expensive and least expensive mutual fund management companies, ranked by each company’s average fund-level asset-weighted expense ratio for both institutional and retail shares.

Pew generated separate lists by investment asset type. Each shows the management companies with the 10 highest-average expenses and 10 lowest-average expenses relative to the median. Click on the name of the asset type in the following list to see the scorecard:

• Equity mutual funds (investments are primarily individual company stocks).
• Hybrid mutual funds (investments include both equities and bonds).
• Bond mutual funds (investments are primarily fixed-income securities, such as government bonds).

Methodology

The analysis of mutual fund annual expenses uses 2019 data from the Survivor-Bias-Free U.S. Mutual Fund Database, available from the Center for Research in Security Prices at the University of Chicago. Weighted expense ratios were calculated for the institutional shares and retail shares of each of the funds that offered at least one of each share type. Please see the Methodology in the issue brief for additional details on the calculations. For each management company, average fund-level asset-weighted institutional and retail share expense ratios were then calculated for funds offered within each investment type: equity, hybrid, and bond funds.