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What is driving fees low
ETF

What is driving fees low

Morningstar Global Investor Experience study (GIE) analyses the factors that are driving fees lower.
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10 NOV, 2019

By Constanza Ramos

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The sixth edition of its Morningstar Global Investor Experience study (GIE) analyses the factors that are driving fees lower. The study highlights changes in the regulation, client awareness of cost, unbundling of fees, disintermediation and higher competition as the reasons for the fee reduction.

  • Regulation: The UK Retail Distribution Review, Australian Future of Financial Advice, and subsequent Banking Royal Commission, as well as the Markets in Financial Instruments Directive, have all hastened the lowering of fees for investors in the UK, Australia, and some European markets. In 2018, the Indian market regulator the Securities and Exchange Board of India also intervened, reducing the expense ratio cap for funds across Indian categories.
  • Awareness: in countries where retail investors have access to multiple sales channels, investors are favoring lower-cost fund share classes.
  • Unbundling: The move towards fee-based financial advice has spurred the demand for lower-cost funds like passives. Financial institutions and financial advisers have opted against costlier share classes that embed advice and distribution fees.
  • Competition: In the larger and more competitive markets, asset managers have been cutting fees to vie for market share. Price wars are taking place amongst passive fund (ETF and Open-ended) providers, with heavyweights such as Fidelity bringing fees closer to zero in some markets, putting downward pressure on fund fees across the industry.
  • Disintermediation: In emerging fund markets like China, investors still confront sales loads, although those who purchase funds online will often benefit compared with those who choose to buy funds from banks. While these online channels can avoid excessive up-front loads, we have yet to see sufficient assets in these new channels to materially drive asset-weighted median fees lower.
  • Bans on sales loads, taken together have continued decoupling of fund expenses from advice charges, bans on commissions, and mandatory fee transparency have seen many investors pay less than ever before.
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