Which Countries Have the Lowest Fund Fees?
According to the study, lower asset-weighted median fees are driven by a combination of asset flows to cheaper funds and repricing of existing investments.
In markets where retail investors have access to multiple sales channels, investors are increasingly aware of the importance of minimizing investment costs, prompting them to favor lower-cost fund share classes.
Outside the U.S., Australia, the U.K. and the Netherlands, investors rarely pay for financial advice directly. A lack of regulation that limits loads and trail commissions can cause many investors to unavoidably pay for advice they do not seek or receive.
Even in markets where share classes without trail commissions are for sale, such as Italy, these are not easily accessible for the average retail investor, given that fund distribution is dominated by intermediaries, notably banks.
The move toward fee-based financial advice in the U.S. and Australia has spurred demand for lower-cost funds in other markets. The new study said institutions and advisors have increasingly opted against costlier share classes that embed advice and distribution fees, a trend that extends to markets such as India and Canada.
Price wars in the ETF space have put downward pressure on fund fees across the globe, according to the study. In the U.S., competition has driven fees to zero in a handful of index funds and ETFs, and these competitive forces are spreading to other corners of the fund market.
The report said the U.S., Australia and the Netherlands earned top grades this year because of their typically unbundled fund fees, noting that this is the fourth consecutive study in which the three countries have received the highest grade in this area.
At the other end of the spectrum are markets where banks dominate fund distribution. The study said there is no sign that market forces in those regions alone will drive down asset-weighted median expense ratios for retail investors.
It pointed in particular to markets such as Italy, Hong Kong, Singapore and Taiwan, where expensive offshore fund sales predominate over those of cheaper, locally domiciled funds.
According to Morningstar, the U.K. has introduced annual assessments of value, which it said is one of the most significant regulatory developments since the 2019 study. These require asset managers to substantiate the value that each fund has provided to investors in the context of the fees charged.
