Fund fees are dropping, but volume is driving fee revenue higher.
Those are some of the findings of Morningstar's latest study of fund fees, which looked at trends in expense ratios and investor preferences over the past 10 years through 2014.
Investors are going out of their way to take advantage of lower fund management fees. They're abandoning load-based share classes and instead turning to those without loads. No-load share classes also tend to have lower expense ratios.
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And it's not just a few investors, either. The study found that during the past 10 years, 95 percent of fund flows have sought out funds in the lowest-cost quintile.
Fees are moving steadily downward, with the asset-weighted expense ratio across all funds at 0.64 percent in 2014. That's down just a bit from 2013, when it was 0.65 percent, but it's significantly lower than five years ago, when it was 0.76 percent.
The firms with lower asset-weighted expense ratios have seen their market share rise over the past five years, with Vanguard a conspicuous example. And that doesn't mean that industry fees overall are less. What they don't make in higher fees, managers are making up in volume as lower fees draw more investors and drive up assets under management.
The majority (63 percent) of fund share classes and exchange-traded products Morningstar looked at for the study have cut their expense ratios over the past five years, but most haven't cut them by very much. Only 24 percent saw fees go down by more than 10 percent.
And there are, of course, outliers who buck the trend; 21 percent of the share classes in the study actually increased their fees.
Over the past 10 years industrywide, assets under management rose 143 percent. That pushed estimated industry fee revenue to an all-time high of $88 billion in 2014 — up 78 percent from $50 billion 10 years ago — while the asset-weighted expense ratio declined 27 percent.
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