The Fee Free-Fall Will Continue

Mutual fund fees have been on the decline for seven years, and the trend isn’t expected to slow. This according to an article in Institutional Investor.

The article reports that PwC’s 2019 U.S. Mutual Fund Outlook report reflects that by 2025, combined active and passive expense ratios will decline by 22 percent. The report also states that U.S. mutual fund assets are expected to increase by 46 percent by 2025, but that industry revenue will grow by only a modest 10 to 15 percent.

Other findings outlined in the report include:

  • Larger managers are better positioned to absorb the fee cuts because of the scale of their business and the advantages they enjoy in terms of technology and back-office operations.
  • Smaller active managers are trying to gain competitive edge by experimenting with results-based fee structures, client-tailored pricing of share classes and new “active versions” of ETFs.
  • Mutual fund firms will “shave products from their lineups, particularly as distribution platforms shrink.”
  • Lower fees and fewer products will lead to a decreased need for asset managers, a trend that is likely to continue through 2025.
  • “As pricing pressure intensifies, firms should look for creative ways to price their products to satisfy investor demand for value. Aligning fees with performance may help, but managers must work to understand what else constitutes ‘value’ in the minds of investors.”
  • The five largest mutual funds will grow by 4.8 percent annually through 2025 while the remaining funds will wrestle for market share.
  • The mutual fund industry will undergo significant consolidation over the same period, with up to 20 percent of existing firms either being bought or dissolved by 2025.