Must-Read: Josh Brown: Funds Aren’t Cutting Fees, Investors Are
… Investors are leaving higher cost funds and gravitating toward lower cost funds. I would surmise that the education they are getting on financial blogs and from their advisors is helping to drive this trend.
A new Morningstar study released today shows that the asset-weighted expense ratio across all funds (including mutual funds and exchange-traded products, or ETPs, but excluding money market funds and funds of funds) was 0.64% in 2014, down from 0.65% in 2013 and 0.76% five years ago. The trend is being driven more by investors seeking low-cost funds than it is by fund companies cutting fees.
The data is undeniable: the investor class is learning…. There are many more clients now being served by fee-based financial advisors than pure transactional brokers…. With less brokers, there is the commensurate decline in the type of funds brokers favor (the ones that pay them most). Broker-sold or “load” funds are going the way of the dodo…
I am much less optimistic than Josh Brown is. We have a long, long way to go before we have a financial system in which investment-managing intermediaries are truly paid proper fees for performance. If a century and a half of modern financial markets is not enough to teach people that buy-and-hold, continuous commitment, diversification, and rebalancing are the keys, what length of time would be long enough?