As they see their industry faced with more heated competition than ever, investment managers are slashing the fees they charge: exchange traded funds (ETFs) are chopping their expense ratios and brokerages are lowering their commissions.
The trend toward lower expense ratios for investing with various tools is likely to continue, too. Stan Luxenburg for Registered Rep likens the providers cutting their fees to competitive retailers, cutting their prices to lure in more customers.
ETF providers, mutual funds and even some hedge funds are lowering their fees, but not everyone is on board with the new cost-conscious movement. The gap is widening for the low-cost investments to the expensive ones, so it is more important than ever for investors to shop around for the lowest fees. In the end, this could mean thousands of dollars in principal capital.
Schwab is allowing customers to trade its proprietary ETFs for free and has lowered commissions on all other trades to $8.95; Fidelity is allowing investors to trade 25 select iShares ETFs for free on their platform. These moves represent a bold stroke, since investors typically pay standard brokerage commissions to buy and sell ETFs. [How Low Can Fees Go?]
Hedge funds have traditionally charged annual management fees of 2%, plus performance or incentive fees on top of that. But, dissatisfied with the fees, many clients have been negotiating lower costs. The average annual fee is now 1.63%.
While mutual fund investors have little room to negotiate, many are benefiting from lower fees. The average dollar invested in a domestic equity fund now faces an expense ratio of 0.78%, down from 0.91% five years ago, according to Morningstar.
For more stories about ETFs, visit our ETF 101 category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.