ETF fees stall as mutual fund costs keep falling, Morningstar finds

After years of steady decline, the average fee investors paid for ETFs settled at 0.16% in both 2023 and 2024, according to Morningstar’s new 2024 Annual U.S. Fund Fee Study. Conversely, fees for mutual funds dropped to 0.42% last year, down from 0.44% a year prior.

“We've seen active ETFs have especially been a strong trend recently, and those are higher costs than their index counterparts. I think that's contributed to the slowing rate of decline for ETF average fees relative to mutual fund average fees,” said Morningstar analyst Zach Evens. “Some innovations we've seen in the fund universe, especially over the last year, have been into more complicated and expensive products—such as options-based ETFs, interval funds, and active ETFs.”

Declining fees in 2024 saved investors $5.9 billion in fund expenses across ETFs and mutuals, according to Morningstar. The impact of continued fee compression trends for financial advisors was recently documented in a Cerulli report that says by 2026, 83% of advisors expect to charge less than 1% for their clients with more than $5 million in investable assets.

“There may well be merit in higher fee products,” said Evens. “A lot of higher fee products do outperform. But I think it requires due diligence on the part of the advisor, on the part of the investor, on the part of a research analyst that's covering the fund, to provide some confidence that the fund is likely to do better than a lower cost alternative.”

The shift asset managers continue to make towards higher-fee, actively managed ETFs can be attributed in part to Vanguard's stronghold on low-cost funds. Vanguard maintains an average fee of just 0.07%, and its major reduction in February saved investors an estimated $350 million this year. Vanguard’s 0.07% average fee for 2024 is less than half of the average fee paid by investors in BlackRock’s iShares, the second-largest U.S. fund manager behind Vanguard. 

“It puts the rest of the industry in a tough position, because the fees charged for many Vanguard Index, ETFs and mutual funds, is already very close to zero,” Evens said. “I think that has pushed some of them to launch these relatively higher products that are differentiated from those low cost S&P 500 index funds as an example.”