Investors Win as Fund Fees Continue Decline
Morningstar’s latest fund fee study shows a steady spiral for fund fees and billions of savings for investors. “The average expense ratio paid by fund investors is half of what it was two decades ago,” the report said. “Between 1999 and 2019, the asset-weighted average fee fell to 0.45% from 0.87%.” The 2019 Fund Fee Study showed low-cost passively managed funds continued to capture investor assets while active fund outflows maintained momentum. In 2019, the cheapest 20% of funds saw net inflows of $581 billion, with the remainder suffering outflows of $224 billion. The cheapest 10% of funds alone received $526 billion of inflows, the report found. Morningstar’s Ben Johnson gave three explanations for the continuing trends: (1) investors are flocking toward low-cost, tax-efficient index funds (2) the shift away from transaction-driven business models and toward fee-based ones has led financial advisors to recommend lower-cost funds to their clients – which allows them to make more room for their fees, which are often charged as a percentage of client assets under management; and (3) target-date funds have experienced significant growth as they are now the default investment option in many retirement plans.