The average expense ratio paid by fund investors, which has been falling for more than two decades, was 0.41% in 2020 — less than half what investors paid in fund fees, on average, in 2000.
That 2020 average was also lower than the 0.44% investors paid in 2019, according to Morningstar’s annual fund fee study. The decline in fees from 2019 resulted in investors saving $6.2 billion, according to Morningstar.
Fund investors themselves deserve much of the credit, Morningstar said, as the shift toward low-cost funds, and especially passive funds, has been the primary driver of this decline.
The asset-weighted fee across all passive funds had declined 66% since 1990 and was 0.12% in 2020. Meanwhile, the asset-weighted fee paid by investors in active funds stood at 0.62% last year — a 33% decline over the same period.
“While there is plenty to celebrate, investors mustn’t relent,” said Ben Johnson, Morningstar’s director of global exchange-traded fund research, said in a commentary. “Though fund costs have come down, the total costs borne by investors haven’t necessarily followed in lockstep. For example, the cost of advice has increasingly been stripped out of funds’ fees and resurfaced in the form of advice fees.”
He suggested that investors keep accounts of what they’re paying for their investments and advice.
The downward pressure on fund expenses is unlikely to abate, Johnson said.
“Competition has driven fees to zero in the case of a handful of index mutual funds and ETFs. The same forces that spawned these zero-fee funds have begun to spread to other corners of the fund market, areas where there is still ample room for fees to fall further,” Johnson said.
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Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.