In their coverage of a recent class action lawsuit brought against H-E-B LP, which alleges that the San Antonio-based company has been overpaying for index funds in its employees’ retirement plan, The Wall Street Journal spoke with Los Angeles partner Fred Reish about the industry trend of lower cost index funds. The publication reports that the lawsuit argues that annual expenses on some of those market-matching funds run between 0.11% and 0.14%—but should instead be as low as 0.015%.
The suit against H-E-B is among the latest of several recent cases to contend that investment management fees should be lowered, and that the cost of investment management is on its way to zero.
Active funds, whose managers seek to use human judgment and expensive research to pick the best and avoid the worst investments, often don’t look exactly alike, and their fees can vary widely. Index funds, however, use computers to buy every stock or bond in a market and include much cheaper fees.
Reish told The Wall Street Journal that “if you have some index funds that are charging, say, 0.01% to 0.03% and others charging 0.1% or more, then there’s a pretty good argument that it’s not reasonable to pay the higher fees.”