Declining Mutual Fund / ETF Fees

Many investors never see or pay attention to the expense ratios of their mutual funds and ETFs. However, financial planners know that these costs add up, and, as a result, generally seek the lowest cost share class for their clients.

A recent industrywide review by the Morningstar found that, on a asset-weighted basis (meaning that funds with more assets were weighted proportionately more heavily), investors pay an average fee of 1.10% a year in actively-managed U.S. equity funds, down from 1.21% in 2015. Investors in passively-managed U.S. equity funds (including ETFs) paid an average of 0.49% a year, down from 0.62% in 2015. Actively-managed international stock fund costs came down from 1.39% to 1.22% over the same time period; and for passively-managed funds, the drop was from 0.60% to 0.49%.

Morningstar predicts that fund fees in both active and passive categories will continue to drift lower, as consumers and advisors put their money into increasingly less expensive funds. And it notes that there are now a handful of zero-fee index mutual funds and ETFs. Who knows – maybe in 50 years from now, some funds will pay investors to invest in their funds.