Fund Fees Plunge! Thanks to You

Fund expenses are coming down, but don’t thank the financial services industry—pat yourself on the back. The fees are dropping, a new report says, because more investors are choosing low-cost funds, not because an industry with assets at an all-time high is passing along the benefits of its huge economies of scale.

A fee study by Morningstar Inc. shows how investors have overwhelmingly favored low-cost index funds and exchange-traded funds over the past five years—index funds, for the most part, but low-cost actively managed funds, too. All but 5 percent of the money going into funds went to products with expenses in the lowest 20 percent of the fund universe. And where investors are benefiting from economies of scale, it's largely because a long bull market has swelled some accounts to a dollar amount at which they automatically qualify for a break on fees.