They use underlying stock and bond funds engaged in the active selection of securities, whereas firms focused on passive management use funds that track an index like the S&P 500.Īctive managers tend to asses higher fees than passive managers. American Century has one series, the One Choice funds.īoth firms fall into the camp focused on active management of their funds. The Fidelity Freedom funds hold the lion’s share of its TDF assets, at 82%. Holt said.įidelity has two other series - Fidelity Freedom Index and Fidelity Multi-Manager - to which the changes don’t pertain. Brown said.įidelity changed the management fee structure for its Fidelity Freedom and Fidelity Advisor Freedom TDF series in June, and American Century’s switch is expected later in 2017, Mr. The single-fee method doesn’t impose such limitations - asset managers are free to add whichever asset classes they like to the portfolios, with an eye toward enhancing performance, without sacrificing on cost marketability, Mr. Target-date managers have historically used an “acquired fee” model, whereby firms determine the cost of the overall portfolio based on the asset-weighed cost of the underlying funds.įor example, a portfolio of two mutual funds, one costing 0.5% and the other 1%, both with the same amount of assets, would have an overall cost of 0.75% under the acquired-fee approach.īut, adding a relatively expensive strategy, perhaps a liquid-alternative portfolio, could increase the expense ratio by several basis points, making the TDF less attractive to 401(k) advisers and plan sponsors, said Chris Brown, the founder and principal of Sway Research, which studies asset management distribution in defined contribution plans. This structure allows the firms to charge a fixed fee for their TDFs, irrespective of the underlying funds that make up the portfolios.
The two asset managers are the first among their peers to switch to a “single fee” management structure in their target-date mutual funds, analysts said.
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