The findings in this blog post come from our annual survey of over 1,350 registered investment adviser (“RIA”) firms that was conducted in the first quarter of 2019. This proprietary RIA in a Box study is paired with publicly accessible data provided by the Securities and Exchange Commission (“SEC”). The goal of our annual study is to understand different options that comprise each firm characteristic, and to determine whether specific characteristics affect the growth, size, or operational efficiency of an RIA firm. The focus of this blog post is to explore mutual fund and exchange-traded fund (“ETF”) fees for products used by investment advisers to implement investment strategies.
Mutual Fund Fees
A mutual fund is a type of fund that is comprised of pooled money from investors and invests in securities such as stocks, bonds, and other assets. Of the RIA firms surveyed, 34% indicated their firm primarily utilizes mutual funds to implement investment strategies for their clients. Among this group of advisers, the survey revealed the average mutual fund fee directly charged to clients is 0.37% which is slightly higher than the median fee of 0.35%:
Compared to last year’s data, the average mutual fund fee charged to clients has decreased slightly from 0.40%. As shown in the chart above, the most frequent mutual fund fee charged is less than 5 basis points (0.00% to 0.05%). Thus, it would appear that a significant number of RIA firms primarily investing client portfolios into mutual funds are utilizing low-cost index funds to implement more passive-like portfolios. In total 32.1% of advisory firms select mutual funds with an average expense ratio of 15 basis points (15.0%) or less. Furthermore, the majority of RIA firms select mutual funds with average expense ratios of 50 basis points (0.50%) or less as only 26.5% of RIA firms use mutual funds with an average expense ratio of over 50 basis points.
Exchange-Trade Fund Fees
An exchange-traded fund is an index-tracking collection of securities that contain investments such as stocks, commodities, bonds, or a mixture of investment types. Similar to mutual funds, 34% of the RIA firms surveyed in 2019 indicated that their firms primarily use ETFs to manage client investment portfolios compared to 33% of firms surveyed in 2018. From this group of advisory firms, the average ETF fee charged directly to clients is 0.23% and the median fee is 0.15%:
Compared to last year’s data, the average ETF fee charged to clients has decreased slightly from 0.26%. The median ETF fee is significantly lower than the average ETF fee indicating that the average is likely skewed by a small volume of more expensive ETFs being used by a subset of RIA firms. 53% of RIA firms select ETFs with average expense ratios of 15 basis points (0.15%) or less and only 8.9% of RIA firms use ETFs with an average expense ratio of over 50 basis points (0.50%). Similar to mutual fund selection, the most frequent ETF fee charged is less than 5 basis points (0.00% to 0.05%).
To read more about the results of this year’s industry study related to fees, check out our previous blog posts highlighting outsourcing fees, advisory fees, and total all-in client fees.