Mar 24, 2019

Wall Street fund fees are dropping at an astonishing rate

It's rare to see Wall Street fees come down — but when it comes to fund managers, that's exactly what's happening, at a quite astonishing pace.

Data: Investment Company Institute; Chart: Harry Stevens/Axios

The state of play: The Investment Company Institute is the best source of data on asset-weighted average expense ratios — that is, the amount that investors, in aggregate, pay ETF and mutual fund managers to look after their money.

By the numbers: As recently as 2003, investors were paying 1% of their money every year to the people buying and selling stocks on their behalf. That number has now been cut in half, with equity funds charging just 55 basis points on average. (A basis point is a hundredth of a percentage point.)

  • Target date funds are even better value, with fees having come down to 40bp in 2018. These funds invest in a mixture of bonds and stocks, with the proportion invested in stocks falling as you near retirement.
  • Expect these trends to continue. Most Americans are still invested in actively managed ETFs and mutual funds, which carry higher fees. As assets under passive investment continue to grow, the downward pressure on fees will continue.

The bottom line: With $3.4 trillion invested in ETFs and $3.3 trillion in mutual funds, every 10bp of fee reduction means a savings of $6.7 billion per year for American investors.

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