Investors Benefit From “Fee Wars”

February 26, 2021

Fresno Financial Consultant News

From two-for-one buys to free shipping, consumers love saving money. The same is true for investors. Over the past 20 years, investors have become savvy at monitoring not only how much their portfolio earns, but how much they pay in management and other fees.

This attention to cost has driven expenses down in the last two decades, especially among mutual fund companies. With rising competition from low-cost exchange-traded funds (ETFs), mutual fund expenses dropped from an average 0.87% in 1999 to 0.45% in 2019. That represents about $5.8 billion in earnings on money that remained in investor accounts.1

Wall Street appears to be learning lessons from large volume discounters like Amazon and Walmart. In 2019, 20% of the least expensive funds attracted $581 billion in new money while the top 80% lost $224 billion. Much of that new money is flowing into index funds, which cut fees from 0.72% in 2015 to 0.61% last year.2

As investors seek funds with lower expenses, asset managers have responded by cutting fees further to remain competitive. The average fee among actively managed funds decreased by 10% between 2015 and 2019. And increasingly, more investors are opting to pay for advice in the form of fees instead of commissions.3

1 Alex Soojung-Kim Pang. The Atlantic. April 30, 2020. “To Safely Reopen, Make the Workweek Shorter. Then Keep It Shorter.” https://www.theatlantic.com/ideas/archive/2020/04/safely-reopen-make-workweek-shorter/610906/. Accessed June 2, 2020.