NICSA benchmarking | Low balance accounts

This NICSA News guest blog feature was written and submitted by the NICSA Compliance and Risk Management Committee members Tony D’Elia, AllianceBernstein and Kevin Seymour, OFI Global.

A member of NICSA’s Compliance and Risk Management Committee raised the question, “How do mutual funds handle low balance accounts?”Low Balance Account Chart3

To find an answer, ten members of the Committee recently shared their firms’ approaches. Low-balance accounts may cost more to service than the fee revenue that they generate. Funds may address the issue in one of two ways: they may redeem accounts that are not brought up to the required minimum in a timely fashion or they may deduct a fee from the account each year for as long as the account remains below the stated minimum.

Of the ten firms responding, only three currently assess an annual low balance fee; this fee is typically $20, which reimburses the funds for the expenses of maintaining the account. Six firms have a process in place whereby accounts may be forcibly redeemed due to a low balance, generally using a threshold between $250 and $1,000, while two firms employ neither approach. (One of the responding firms both assesses a low balance fee and has a forced redemption policy, with different thresholds for each.)

The fund families that either assess a fee or redeem accounts allow exclusions based on certain networking levels, retirement account type, election to receive account documents via electronic delivery, maintenance of an active automatic investment plan, or other factors.

The fee and redemption approaches each have their benefits and challenges. Firms assessing a low balance fee note that the fee has generally not led shareholders to increase their investment in their accounts, as many of these accounts are charged the fee over multiple years.

Each firm should consider their own unique circumstances when applying this competitive intelligence. However, this survey suggests that strict enforcement of initial investment minimums and the forced redemption approach are most prevalent.



  • Q64138

    This is a prime opportunity for big data’s predictive analytics. Instead of making decisions on current balances, decisions could be driven by more knowledge of the account owner such as total new worth, investable assets, expected cash (i.e. upcoming bonus or rollover), life events (new baby), etc. With that insight, some of these accounts could be transformed to profitable, long-term relationships for the funds and advisors.

NICSA: 8400 Westpark Drive, 2nd Floor McLean, VA 22102 • Tel: 508.485.1500 • Fax: 508.485.1560