R-6 Share Classes Hit $1.5T

Retirement plan litigation focusing on investment and plan fees—and often on the practice of revenue sharing—as well as the now-vacated fiduciary rule from the Department of Labor (DOL) and an increase in fee-based advising from retirement plan advisers, have raised awareness of the importance of reasonable retirement plan investment fees. This has resulted in a growing demand for investments that allow for fee transparency, plus are created especially for retirement plans.

Many fund companies have introduced “retirement,” or R, shares—explicitly created for retirement plans—with varying fees. Some of these share classes allow for bundling of plan costs, while others, specifically the R6 share class, are ultra-low cost. Based on the trends referenced above, it should be no surprise, then, that these zero/zero share classes with no embedded revenue-sharing, service or distribution expenses continue to grow their assets at a brisk pace. In the first three quarters of this year, assets in these shares, also known as R-6, have risen to $1.54 trillion—a 15% increase from the $1.34 trillion they amassed in the same period last year, according to Strategic Insight Simfund.

Even more remarkable is that, in the past five years, zero/zero share class assets have nearly quadrupled, from $418 billion in 2013. Net flows surged last year to $156 billion, up nearly double from the $72 billion they took in the year before. Further, there are now 83 managers offering zero/zero share classes, up from 43 five years ago.

Cerulli predicted two years ago that zero/zero share classes would continue to rise in popularity. “Amid a persisting trend toward lower cost and more transparent share classes, as well as the recent DOL conflict of interest rule, the R6 share, which typically has no revenue sharing, has witnessed significant asset growth,” Cerulli said.