When it comes to fees and expenses, the U.S., along with Australia and The Netherlands, have received the “Top” grade from Morningstar in the firm’s sixth Global Investor Experience report.
Labeling these three countries the most-investor friendly markets, Morningstar said in its report that the U.S. received the top grade “driven largely by low asset-weighted median expenses across asset classes,” from 0.42% for fixed income funds to 0.59% for equity funds and 0.60% for allocation funds.
Those low ratios translated to top rankings for the U.S. among the 26 markets included in the study when considering available-for-sale funds, according to Morningstar. The U.S. also “benefits from the mostly organic growth of its fee-based advice market and the broad availability of no-load, no-trailer share classes for do-it-yourself investors,” the report said.
In the U.S., front loads and trailing commissions remain “relevant” and aren’t directly influenced by the SEC, according to Morningstar. But “market forces have driven investment away from share classes that employ those traditional fee arrangements,” the report said, adding: “When investors work with a commission-based sales agent, loads and breakpoints are stated and non-negotiable, but load waivers based on cumulative investment are common.”
Of retail share classes, 29% still reported a front load but, per Morningstar’s U.S. Fund Fee Study published in April, these share classes have been in “aggregate outflows for the last five years and are becoming less relevant,” it said.
In recent years, investors have been migrating to fee-based advisors and “advisors themselves have been reconsidering such transaction-based models,” according to Morningstar. Currently, fee-based arrangements make up most of the retail fund assets in the U.S., the report said. It’s also “common for investors to forgo advice entirely and invest directly in funds without loads or commissions,” it noted, adding: “So-called ‘no-load’ funds are widely available and represent a significant portion” of investor assets now.
Similarly, investors can also opt to buy domestically listed exchange-traded funds that the report pointed out “lack the minimum investment requirements of open-end funds and feature prominently in digital advice solutions such as robo-advisors.”