- Major gaps in understanding cost of funds and investment advice
signals opportunity for advisors to help educate investors about
fees and expenses.
- Those who think they understand expense ratios and basis points
believe the average expense ratio considered no longer “low cost” is 0.61%, which exceeds the
asset-weighted average expense ratio of U.S. open-end mutual funds
and exchange-traded funds.
- Fund price is not ranked highly as a primary criteria when
evaluating investments like mutual funds and ETFs.
- Inflation is top of mind and a primary concern for investors in
today’s environment. Rising taxes is a close second.
State Street Global Advisors, the asset management business of
State Street Corporation (NYSE: STT), today announced the findings
of its Low-Cost Investing Survey, which reveals a lack of general
understanding persists about the management costs and advisory fees
investors pay, despite the financial industry’s efforts to make
fees more transparent.
This press release features multimedia. View
the full release here:
https://www.businesswire.com/news/home/20210727005603/en/
Nearly half of investors believe the
management costs of investments like mutual funds and ETFs are
already included in the fee they pay their advisor or investment
platform. (State Street Global Advisors Low-Cost Investing
Survey)
Confusion exists about how investors pay for both investment
products and the guidance they receive from an advisor. An
overwhelming majority indicate they are at least aware of what
expense ratios and basis points are, however less than one-third
feel they understand each “completely.”
“Comprehension of investment product fees – and fees in general
– is low even among those working with an advisor. This underscores
how much work our industry has to do when it comes to price
transparency and investor education,” said Brie Williams, Head of
Practice Management at State Street Global Advisors. “There’s a
clear opportunity for advisors to talk to clients about what they
own, why they own it, and how much it costs.”
Furthermore, nearly half (47 percent) of investors believe the
management costs of investments like mutual funds and ETFs are
already included in the fee they pay their advisors or investment
platform. Notably, investors currently working with an advisor (60
percent) are more likely to agree with this, versus 37 percent of
self-directed investors.
The younger the investor, the more likely they are to agree with
this false statement: 71 percent of Millennials agree versus 51
percent in Generation X and 36 percent of Boomers, who presumably
have had more investment experience over their lifetime.
Similarly, there is a lack of understanding about the meaning of
diversification. While the vast majority of investors (85 percent)
agree “a well-diversified portfolio is one with a variety of
investments that reduce stock market risk,” 55 percent incorrectly
believe, “a well-diversified portfolio is having investments in a
variety of accounts at different firms or investment
platforms.”
How Low is “Low-Cost?”
While the overall awareness of costs at the investment product
level seems to be high, understanding of what the specific costs
actually are is low.
The survey found an overwhelming majority of investors say they
are at least aware of what expense ratios are (87 percent) and what
basis points are (83 percent), however less than one-third say they
understand each “completely.” More self-directed investors than
advised investors say they have a complete understanding of what
these terms mean (34 percent versus 24 percent respectively for
expense ratio; 30 percent versus 19 percent respectively for basis
points).
Furthermore, there seems to be a limited understanding of just
how “low” low-cost actually is when it comes to fund expenses.
Among those who think they understand expense ratio and/or basis
points, the average expense ratio they consider to be no longer “low cost” is 0.61%. Meanwhile, the
asset-weighted average expense ratio of U.S. open-end mutual funds
is 0.51% and the average asset-weighted ETF cost is just
0.20%1.
“Cost differences vary drastically across mutual funds and ETFs.
From an ETF provider’s perspective, low cost is generally
considered funds with an expense ratio of 0.10% or less – this is
6x lower than the threshold of investors in the survey,” said
Williams. “The bottom line is, when all other variables are equal,
lower cost investments can help investors keep more of what they
earn in their portfolio.”
When asked to rank order factors in terms of importance when
evaluating investments like mutual funds and ETFs, the majority of
investors prioritize “risk compared to return” (53 percent),
“quality of stocks in the fund” (51 percent), “performance compared
to peers” (46 percent) and “performance compared to the
benchmark(s)” (42 percent) over “management cost of the fund” (35
percent).
Surprisingly, “track record of the fund manager” (28 percent),
“market sectors covered in the fund” (22 percent) and “tax
efficiency” (22 percent) are ranked among the least important
factors.
Inflation & Taxes Outrank Retirement Savings As Top
Concerns
When it came to concern over some of the financial unknowns or
variables investors commonly worry about, taxes and inflation rose
to the top. Notably, more investors are concerned with rising
inflation (65 percent) and rising taxes (61 percent) than saving
enough for retirement (55 percent).
Millennials and Generation X are more concerned than Boomers
about saving enough for retirement (66 percent and 68 percent
versus 44 percent respectively).
The survey also found awareness of the negative impact taxes
could have on overall investment returns is high. About two-thirds
of investors (62 percent) consider how much taxes could deplete
their returns when they think about investments. Millennials (78
percent) seem the most concerned about the bite taxes could take
out of their returns, with Generation X not far behind at 69
percent, compared to 51 percent of Boomers.
“We expect to see record high flows into low-cost, tax-efficient
ETFs, especially if tax rates increase and the low-yield interest
rate environment persists,” said Williams. “Investors should be
talking to their advisor about strategies for minimizing the impact
that cost, taxes and inflation can have on their overall
portfolio.”
Earlier this year, State Street Global Advisors reduced the
expense ratios of the following fixed income ETFs: SPDR Portfolio
Mortgage Backed Bond ETF (SPMB), SPDR Portfolio High Yield Bond ETF
(SPHY), SPDR Portfolio Aggregate Bond ETF (SPAB), and SPDR
Portfolio Corporate Bond ETF (SPBO). Fixed income ETFs can help
investors reduce their total cost of ownership versus comparable
mutual funds; for more on State Street’s point of view on this
topic read Keep More of What You Earn with Fixed Income ETFs on
ssga.com.
To learn more about how investors are using low-cost ETFs to
achieve a variety of investment objectives, read Build a Low-Cost
Core Portfolio with SPDR ETFs.
Launched in 2017, SPDR® Portfolio ETFs™ are designed to provide
investors greater choice in low-cost ETFs. The suite includes 22
SPDR ETFs spanning US equity, international equity and fixed income
asset classes to help investors build a diversified core portfolio
of stocks and bonds with ETFs priced as low as three basis points.
Widely embraced by investors, SPDR Portfolio ETFs have more than
$111 billion of assets.2
For more information on the SPDR ETF suite, visit
www.ssga.com/etfs.
For more information on ETF basics, visit our ETF education
landing page.
About State Street Global Advisors Low-Cost Investing
Survey
State Street Global Advisors, in partnership with A2B Planning
and our field partner, Prodege, conducted an online survey among a
nationally representative sample of adults. Data was collected from
June 18 – June 20, 2021. For our Custom “Low Cost” Analysis, we
analyze 224 adults with Investable Assets (IA) of $250K or
more.
About SPDR Exchange Traded Funds
SPDR ETFs are a comprehensive family spanning an array of
international and domestic asset classes. SPDR ETFs are sponsored
by affiliates of State Street Global Advisors. The funds provide
investors with the flexibility to select investments that are
aligned to their investment strategy. For more information, visit
www.ssga.com/etfs.
About State Street Global Advisors
For four decades, State Street Global Advisors has served the
world’s governments, institutions and financial advisors. With a
rigorous, risk-aware approach built on research, analysis and
market-tested experience, we build from a breadth of active and
index strategies to create cost-effective solutions. As stewards,
we help portfolio companies see that what is fair for people and
sustainable for the planet can deliver long-term performance. And,
as pioneers in index, ETF, and ESG investing, we are always
inventing new ways to invest. As a result, we have become the
world’s fourth-largest asset manager* with US $3.90 trillion† under
our care.
*Pensions & Investments
Research Center, as of 12/31/20.
†This figure is presented as of
June 30, 2021 and includes approximately $63.59 billion of assets
with respect to SPDR products for which State Street Global
Advisors Funds Distributors, LLC (SSGA FD) acts solely as the
marketing agent. SSGA FD and State Street Global Advisors are
affiliated.
1.
Morningstar data as of July 19,
2021, based on SPDR Americas Research Calculations
2.
Bloomberg Finance L.P. data as of
June 30, 2021
Important Risk Disclosures
The information provided does not constitute investment advice
and it should not be relied on as such. It should not be considered
a solicitation to buy or an offer to sell a security. It does not
take into account any investor’s particular investment objectives,
strategies, tax status or investment horizon.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties
without SSGA’s express written consent.
Investing involves risk, including the risk of loss of
principal.
This communication is not intended to be an investment
recommendation or investment advice and should not be relied upon
as such.
ETFs trade like stocks, are subject to investment risk,
fluctuate in market value and may trade at prices above or below
the ETFs net asset value. Brokerage commissions and ETF expenses
will reduce returns.
While the shares of ETFs are tradable on secondary markets, they
may not readily trade in all market conditions and may trade at
significant discounts in periods of market stress.
Foreign investments involve greater risks than U.S. investments,
including political and economic risks and the risk of currency
fluctuations, all of which may be magnified in emerging
markets.
Bond funds contain interest rate risk (as interest rates rise
bond prices usually fall). There are additional risks for funds
that invest in mortgage-backed and asset-backed securities
including the risk of issuer default; credit risk and inflation
risk.
Non-diversified funds that focus on a relatively small number of
securities tend to be more volatile than diversified funds and the
market as a whole.
Passively managed funds hold a range of securities that, in the
aggregate, approximates the full Index in terms of key risk factors
and other characteristics. This may cause the fund to experience
tracking errors relative to performance of the index.
Standard & Poor’s®, S&P® and SPDR® are registered
trademarks of Standard & Poor’s Financial Services LLC
(S&P); Dow Jones is a registered trademark of Dow Jones
Trademark Holdings LLC (Dow Jones); and these trademarks have been
licensed for use by S&P Dow Jones Indices LLC (SPDJI) and
sublicensed for certain purposes by State Street Corporation. State
Street Corporation’s financial products are not sponsored,
endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their
respective affiliates and third-party licensors and none of such
parties make any representation regarding the advisability of
investing in such product(s) nor do they have any liability in
relation thereto, including for any errors, omissions, or
interruptions of any index.
Distributor: State Street Global Advisors Funds
Distributors, LLC, member FINRA, SIPC, an indirect wholly owned
subsidiary of State Street Corporation. References to State Street
may include State Street Corporation and its affiliates. Certain
State Street affiliates provide services and receive fees from the
SPDR ETFs.
Before investing, consider the funds’ investment objectives,
risks, charges and expenses. To obtain a prospectus or summary
prospectus which contains this and other information, call
1-866-787-2257 or visit ssga.com. Read it carefully.
Not FDIC Insured · No Bank Guarantee · May Lose Value
© 2021 State Street Corporation.
All Rights Reserved.
3667257.1.1.AM.RTL Exp. Date:
08/31/2022
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Deborah Heindel +1 617 662 9927 DHEINDEL@StateStreet.com
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