Data & Research May 5, 2016

Lower-Cost Funds Have Greater Chance of Surviving

That’s also an indication that they outperformed their category group.
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Mornginstar took a look at the survival rates of funds at various fee levels and found that the lower-cost funds had a higher rate of surviving—another indication that these funds outperformed their peers.

“While we think it makes sense to consider a variety of factors when choosing funds, our research continues to find that fund fees are a strong and dependable predictor of future success,” says Russel Kinnel, chair of Morningstar’s North America ratings committee. “We found that the cheapest funds were at least two to three times more likely to succeed than the priciest funds. Strikingly, our finding held across virtually every asset class and time period we examined, which clearly indicates that investors should keep cost in mind no matter what type of fund they are considering.”

Between 2010 and 2015, the cheapest quintile of U.S. equity funds had a success rate of 62%, compared to 48% for the second-cheapest quintile, 39% for the middle quintile, 30% for the second-priciest quintile and 20% for the priciest quintile.

For the cheapest quintile of international equity funds, 51% had a success rate compared with 21% for the priciest. Balanced funds had a 54% success rate for the cheapest quintile compared with 24% for the priciest. Taxable bond funds had a 59% success rate for the cheapest quintile compared to 17% for the priciest, and muni bonds had a 56% success rate for the cheapest quintile compared to 16% for the priciest.

Morningstar’s full report, “Predictive Power of Fees,” can be downloaded here.

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Products May 5, 2016

Strategic Benefit Services Offers M&A Due Diligence

The firm's approach will supplement and complement existing ERISA counsel or other professionals engaged in providing guidance and expertise to the new organization.
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Strategic Benefit Services’ (SBS) retirement plan business expanded its offerings to include a focus on mergers and acquisitions (M&A).

With the long list of complex regulations and requirements involved in the completion of mergers and acquisitions, the implications for retirement plans are often not fully considered, the firm says. With mergers and acquisitions at a record high level in 2015, many plan fiduciaries may have put their plans at risk for failure to recognize protected benefits, service issues, or Internal Revenue Service restrictions on forgotten retirement plans.

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The SBS approach will supplement and complement existing Employee Retirement Income Security Act (ERISA) counsel or other professionals engaged in providing guidance and expertise to the new organization. SBS will add the requisite layer of due diligence to retirement plan administration that is often missing from merger and acquisition projects.

Services include:

  • Pre-Acquisition Analysis;
  • Investment Analysis; and
  • Post-Merger Transition Management.

“When mergers and acquisitions occur, retirement plan regulatory requirements and fiduciary responsibilities need to be addressed.” says James J. Kelley, president of SBS. “The goal is to provide strong support and attention to detail that may often be overlooked, as it is often the small things that lead to more significant failures.”

Strategic Benefit Services has been providing retirement services to health care, not-for-profit, and corporate organizations for more than four decades. It provides advisory services including plan design, vendor management, investment selection and monitoring, operational oversight, and onsite education and communication.

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