Investing Insights

Falling Mutual Fund and ETF Fees a ‘Big Win for Investors’

Oct 13, 2023

Discussion on the trend of falling fund fees and its impact on investors, including insights on decreasing fund fees and the growing gap between cheap and expensive funds. Examining mutual fund and ETF fees, competition among fund issuers, and potential future fee reductions. Mentioning Vanguard as a leader in offering the lowest fees and highlighting top funds and ETFs that have recently experienced fee cuts.

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Quick takeaways

The average expense ratios for open-end mutual funds and ETFs have significantly dropped over the past 20 years, indicating a trend of investors moving away from expensive funds and opting for cheaper ones, which is beneficial for investors.

The declining trend of fund fees can be attributed to investors' increasing awareness of the relationship between low costs and better future returns, a shift towards cheaper options in retirement accounts, and the transition from commission-based to fee-based models in the financial advice industry, resulting in advisors recommending cheaper funds to align with their fees.

Deep dives

Investors are switching to cheaper funds, leading to record low expense ratios

According to a Morningstar study, the trend of investors moving away from expensive funds and opting for cheaper ones has pushed the average expense ratios to a record low. Over the past 20 years, the average asset-weighted expense ratio for open-end mutual funds and ETFs has dropped from 91 basis points to 37. This significant reduction in fees is a win for investors. The study also revealed a growing gap between money flowing into the cheapest quintile funds, which attracted $400 billion, and outflows of $700 billion from the other 80% of more expensive funds.

Trend of Falling Fund Fees and Its Impact on Investors

6min

Understanding Mutual Fund and ETF Fees, Competition Among Fund Issuers, and Future Fee Reductions

6min

Bryan Armour, director of passive strategies research for North America at Morningstar Research Services, discusses how investors and financial advisors are pushing down mutual fund and ETF fees.

Fund Fees History

Fund Flow Trends

Falling Fund Fees

What is Happening with Retirement Accounts?

Is There a Shift in the Financial Advice Industry?

Why Investors May Not See Savings

What is a ‘Greenium’?

Vanguard Wins Cheapest Average Fund Fees

How Low Can Fund Fees Go?

Two Fund Picks

Read about topics from this episode.

Morningstar's U.S. Fund Fee Study