The ETF fee war is great for investors who reap the cost savings but is squeezing profits in an increasingly competitive mutual-fund business, a ratings agency said Tuesday.
“Price competition among providers of mutual funds and ETFs is likely to put pressure on investment management fee growth for U.S. trust and custodial banks,” Fitch Ratings said.
“Recent moves by Fidelity, Vanguard, Schwab, Blackrock, and other fund managers to reduce index fund and ETF fees paid by increasingly cost-conscious investors will make it difficult for trust banks, such as State Street, Northern Trust, and Bank of New York Mellon, to push through meaningful fee growth on individual and institutional customer accounts,” the firm said in a note.
The average cost of an ETF is around 0.45% and some providers are cutting expense ratios to the bone at diversified core products. [Investing on a Shoestring with Low-Cost ETFs]
“Offering the lowest fees in a product category has been a strategy for several entrants, with some incumbents responding with price cuts,” says Morningstar analyst Robert Goldsborough. “And in recent years, brokerage platforms have partnered with ETF issuers to offer commission-free trading of select ETFs.” [A Deeper Look at the ETF Fee War]