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Practice Management > Compensation and Fees

Which Countries Have the Lowest Fund Fees?

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What You Need to Know

  • Italy and Taiwan extract among the highest fees and expenses from investors, the firm found.
  • Fees are falling in many markets due to asset flows to cheaper funds and repricing of investments, study co-author Grant Kennaway says.
  • Price wars in the ETF space have put downward pressure on fund fees worldwide.

Morningstar’s manager research team assigned top grades to the U.S., Australia and the Netherlands, indicating that these markets are the most investor friendly in terms of fees and expenses, according to the first chapter of the firm’s biannual Global Investor Experience report, published Wednesday.

Morningstar assigned bottom grades to Italy and Taiwan, denoting that these fund markets extract among the highest fees and expenses from investors.

Between top and bottom grades, the manager research team can also assign grades of above average, average and below average. 

“The good news for global fund investors is that in many markets, fees are falling, driven by a combination of asset flows to cheaper funds and the repricing of existing investments,” Grant Kennaway, head of manager selection at Morningstar and a co-author of the study, said in a statement. 

“The increased prevalence of unbundled fund fees enables transparency and empowers investor success.” 

Kennaway noted, however, that the global fund industry structure perpetuates use of upfront fees; the high prevalence of embedded ongoing commissions across 18 European and Asian markets can result in a lack of clarity for investors. 

“We believe this can create misaligned incentives that benefit distributors, notably banks, more than investors,” he said.

Morningstar said the new study primarily considers publicly available open-end funds and ETFs. Researchers evaluated markets based on the asset-weighted median expense ratio by market in addition to the structure and disclosure around performance fees and investors’ ability to avoid loads or ongoing commissions. 

The study breaks up the markets into allocation, equity and fixed income funds. The expense ratio calculations consider both funds available for sale in the marketplace and locally domiciled ones.  

Fee Trends

The new research found that asset-weighted median expense ratios for domestic and available-for-sale funds in the majority of the 26 markets studied fell since the 2019 study. For domestically domiciled funds, 17 allocation and equity funds each reported reduced 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.