Fees: Do Bigger Funds Always Fall? Global Fee Declines, Yet Some Charges Remain High
A positive signal emerges from Morningstar’s Global Investor Experience report, underscoring a broader trend toward lower fund fees across many markets over the past two years. The research house highlights that price wars in the passive investment space have been a central driver of this downward pressure, pushing charges lower for a wide array of funds. While this development is encouraging, it is not a universal rule, and Morningstar notes that scrutiny has sharpened in certain regions—particularly with the UK’s fund value assessments introducing an extra layer of vigilance over what investment managers charge end customers. Against this backdrop, a more nuanced picture also appears: fees have not moved in lockstep everywhere, and in some places they may remain stubbornly high or even rise in unexpected pockets. This complexity invites a deeper look at how economies of scale, fixed costs, and evolving market dynamics interact to shape the true cost of investing for individuals. The takeaway is clear: while lower headline fees are a welcome trend, investors should examine the entire cost structure and the value delivered, as suggested by recent analyses that challenge simplistic assumptions about how costs evolve with fund size and market maturity.
Global trends in fund fees: a decline with regional nuance
Morningstar’s Global Investor Experience report provides a comprehensive view of fee dynamics across major markets, emphasizing a broadly favorable drift in cost structures over a sustained period. The observed trend is not a single velocity; rather, it reflects a mosaic of progress driven by several converging forces. The most prominent driver is the ongoing competition within the passive investment space. Exchange-traded funds and index-tracking funds have proliferated, offering transparent, low-cost options that tap into scale economies achieved through widespread asset base, streamlined trading, and standardized administration. This competitive environment has compelled many active managers to re-evaluate their pricing models or adopt more aggressive discounting in an effort to preserve market share, particularly among lower-cost platforms that aggregate broad investor demand. In parallel, digital trading platforms, robo-advisors, and direct-to-investor channels have reduced distribution costs and enhanced price visibility for the end customer, reinforcing downward pressure on ongoing charges.
The Morningstar report also points to the broader impact of transparency initiatives and evolving regulatory expectations that make costs more visible and easier to compare. As charges become easier to scrutinize, fund managers have had to justify fee levels more forcefully by demonstrating value-for-money, performance alignment, and explicit support services—such as enhanced data, reporting, and educational resources—that accompany the price tag. In Europe, North America, Asia-Pacific, and other regions, this combination of price competition and greater visibility has helped many funds lower expense ratios or eliminate certain fee components that previously inflated the all-in cost to investors. Yet while the trend toward lower headline fees is evident, Morningstar emphasizes that there is a consequential variability across regions, market segments, and fund types. Some areas exhibit notable resilience in cost structures, with fees that do not decline in tandem with others, and in some cases may even rise due to structural factors, distribution arrangements, or the persistence of higher-overhead active management models.
A critical mechanism behind the observed reductions is the emergence of more cost-efficient execution and settlement processes enabled by technology and centralized custodial arrangements. As funds scale, the per-unit cost of compliance, administration, and reporting tends to fall, creating a natural incentive for managers to pass on savings either as reduced ongoing charges or through more favorable performance-related fee frameworks. Moreover, the mass-market appeal of passive strategies has expanded the pool of capital available to fund sponsors, enabling even deeper economies of scale. This dynamic is particularly pronounced in markets where regulatory regimes favor low-cost products or where standardization around index construction yields predictable and repeatable cost structures. Taken together, these factors suggest a structural shift toward lower ongoing charges in many fund categories, especially in the passive bucket and in cross-border product suites that benefit from scale efficiencies.
Nevertheless, Morningstar’s broader conclusion is not an unqualified victory lap. The report highlights that cost reductions are neither uniform across all asset classes nor guaranteed to perpetuate indefinitely. Some fund categories—most notably certain active strategies that carry higher research, trading, and distribution costs—continue to require more expensive operational models. In these areas, the fee trajectory may lag behind the cuts observed in passive funds, reflecting the ongoing tension between delivering alpha in active management and maintaining affordable price points for retail investors. This nuanced landscape implies that while the overall direction of travel is favorable, investors should remain vigilant about the total cost of ownership and the specific fee structure of each fund, acknowledging that a lower advertised fee does not automatically equate to superior value if hidden costs or lower performance dampen overall outcomes.
The build-out of fund value assessments in the UK adds another layer to this global narrative. These assessments, designed to measure whether a fund delivers commensurate value relative to its charges, have intensified scrutiny of managers’ pricing and the allocation of costs across investors. In practice, this means that even as headline expense ratios decline in many markets, scrutiny over what investors are actually paying—through charges embedded in fund structures, platform fees, and ancillary costs—has become more intense. The UK position illustrates how policy developments and market expectations can shape fee behavior, encouraging more transparent accounting and potentially prompting issuers to reallocate resources toward services that demonstrably enhance value or to adjust fee schedules to align with perceived value. As Morningstar notes, such policy-driven shifts can influence price-setting behavior and investor perceptions, ultimately contributing to a more sophisticated market for fund charges where value-for-money becomes a central criterion for decision-making.
Another important theme in the global fee story is the distribution of costs beyond the headline management fee. Investors often confront a mosaic of charges, including platform fees, trading costs, performance-related incentives, and potential penalties for early withdrawal or redemption, depending on the product wrapper and jurisdiction. Morningstar’s analysis encourages a broader framing of cost that captures the full economic burden borne by the investor rather than focusing solely on a single line item. In many markets, the cumulative effect of these hidden or indirect costs can be substantial, particularly for long-term investors who remain invested across multiple market cycles. Therefore, a meaningful assessment of fund value requires an integrated view that combines the ongoing charges figure (OCF) with transactional costs, bid-ask spreads, and the quality of service and support that accompany the investment experience.
In sum, the global trend in fund fees over the last two years reflects an ongoing tilt toward lower charges driven by passive competition, enhanced transparency, and scale-driven efficiency. This shift, however, is not monolithic. It varies by region, fund type, regulatory environment, and the maturity of distribution channels. Investors should expect continuing downward pressure on costs in many areas, but with pockets where costs remain stubborn due to structural or market-specific factors. The Morningstar report therefore presents a differentiated view: progress is real and meaningful, but it must be interpreted within a broader context that values not only the price tag but also the entire ecosystem of costs, services, and outcomes that together determine the true price of investing.
Drivers behind cost reductions in the passive space
Several causal threads reinforce why passive fund charges have moved lower in many markets. First, the sheer scale of passive assets has amplified economies of scale for fund managers and platform providers, enabling cost sharing across greater asset bases and reducing per-unit administration expenses. Second, competition among index-tracking products has intensified, with many fund families launching lower-cost variants to attract price-sensitive buyers and to capture additional market share. Third, advancements in technology, index methodology standardization, and centralized trading infrastructure have lowered operational costs, reinforcing the ability of managers to maintain or reduce fees without sacrificing service levels. Fourth, investor education and demand for transparent, easy-to-compare products have pushed the market toward formats and fee structures that are easier to benchmark against peers, prompting rivals to match or beat peers to avoid losing customers. Finally, regulatory frameworks in several regions have incentivized fee disclosure and simplification, reducing the opacity that can sometimes obscure the true cost of ownership.
These drivers interact with broader market forces, such as the shift toward low-cost, diversified core holdings and the growing acceptance of passive strategies as a core building block in many portfolios. While the headline numbers are meaningful, it is essential to note that some managers retain flexibility to adjust or restructure fee components in response to shifting costs, distribution arrangements, or the emergence of new product wrappers. The net effect is that while the direction is downward for many cost lines, the rate and depth of discounting may vary, and investors should be mindful of the entire cost stack when evaluating investment choices.
The UK context and the role of fund value assessments
The UK’s introduction of fund value assessments represents a key policy and market development that intersects with fee dynamics in a meaningful way. These assessments are designed to bring a sharper focus to the relationship between charges and the actual experience delivered to end customers. In practice, fund value assessments encourage managers to justify fee levels by demonstrating tangible value, such as consistent performance relative to risk, transparency of costs, and clarity around the benefits of any services that accompany the investment. The implications for pricing strategies are notable: as value-for-money metrics become embedded in market expectations, firms may recalibrate the structure of ongoing charges, performance-based components, or ancillary fees to ensure their products align with investors’ sense of fairness and long-term value. This evolving UK framework thus serves as a powerful signal that cost optimization alone is not sufficient; managers must couple lower fees with demonstrable value, compelling a shift toward more thoughtful, service-enhanced cost models that resonate with retail investors.
The UK example also underscores the broader trend of policy-driven cost discipline across markets. As regulators emphasize transparency and consumer protection, fund managers face increasing incentives to present a coherent narrative that links cost to benefit. The resulting marketplace effect can contribute to a more competitive pricing environment, where fees are negotiated with greater care and investors enjoy a clearer picture of what they are paying for and what they stand to gain. For Morningstar and other research houses, such developments provide fertile ground for deeper analysis of how value-for-money metrics influence pricing and investor behavior, and how these metrics interact with external pressures such as competition, product innovation, and macroeconomic conditions.
Regional variations and persistent high fees in unexpected places
A complementary strand in Morningstar’s findings is the recognition that fee trajectories are not uniform across all geographies or asset classes. While many regions experience meaningful reductions in ongoing costs, others show a more modest pace of change or even stubborn plateaus. There are a number of plausible explanations for this divergence. First, certain markets carry higher structural costs tied to distribution networks, regulatory compliance, and cross-border administration that are not as easily mitigated by scale. Second, the prevalence of active management in some segments—where research intensity, trading costs, and post-trade processing contribute to higher budgets—can slow the pace of fee reductions, particularly when investors are drawn to potential outperformance or unique strategies that require more expensive management models. Third, local investor preferences, tax considerations, and product design conventions can influence how charges are packaged and paid, creating a mosaic of pricing norms that do not always align with global downward pressure.
In some regions, higher fees persist even as headline rates in other markets decline. This persistence may reflect entrenched distribution costs, add-on services that are valued highly by certain investor groups, or the presence of legacy products with fee structures that have not yet been reengineered to reflect current market dynamics. It can also be tied to the availability of high-quality, well-resourced active funds that draw assets despite higher costs due to perceived or real alpha potential, or to regulatory environments that favor certain fee architectures as part of broader market development goals. While Morningstar’s global lens captures overall progress, it also highlights the importance of granular analysis when assessing the true cost of investing in particular markets or fund families. For investors, this means that a favorable trend in one region does not automatically translate into universal lower costs elsewhere, and careful due diligence remains essential when selecting funds across borders.
The nuance extends to niche or specialized fund categories, where the cost structure can reflect bespoke research, smaller fund ranges, or tailored risk-management frameworks. In these spaces, the per-unit cost may be higher, but the investor may also receive targeted exposure, risk controls, or strategic fit that justifies the premium—if the perceived value aligns with personal investment objectives. Conversely, some broad-based, diversified products in less mature markets may deliver substantial cost relief through scale and competition, underscoring the heterogeneity of the global fee landscape. The overarching message from this regional reading is that investors should not assume uniform price declines; instead, they should map cost trajectories against product type, market maturity, and the availability of competing products that offer similar risk and return profiles.
Persistent high costs and the role of complexity
A particular area of interest in the regional narrative is the persistence of higher costs in situations where funds are small or structurally complex. Newer or boutique funds, for instance, can incur substantial fixed costs related to setup, regulatory compliance, and ongoing governance, even when assets under management are modest. These fixed costs may be distributed over a smaller base, resulting in higher ongoing charges. As funds grow, these costs tend to dilute, and charges can fall, but the transition period can be long. This dynamic challenges a simple presumption that larger funds automatically incur lower charges, highlighting the importance of asset growth, efficient product design, and cost discipline in achieving meaningful fee reductions over time.
In practice, this means that investors who gravitate toward newer fund launches should be prepared for the possibility of elevated charges in the early years, until scale economics take hold. Conversely, established funds with proven track records and broad distribution networks can often command more favorable fee structures due to deeper economies of scale and stronger competitive positioning. The AJ Bell analysis, discussed in a subsequent section, delves into the complexity behind these patterns, suggesting that the relationship between fund size and cost efficiency is more nuanced than a straightforward correlation. The evidence implies that investors should consider not only the headline fee but also the lifecycle costs and the potential for future fee reductions as funds mature.
Economies of scale, fixed costs, and the AJ Bell perspective
A key challenge to the simplistic view that bigger funds always mean cheaper investing lies in the interplay between economies of scale and the fixed costs that underlie fund operations. The argument goes like this: as assets grow, the fixed costs of research, compliance, distribution, and governance can be spread across a larger base, reducing the per-unit cost and enabling lower ongoing charges. However, this logic assumes that the revenue model is sufficiently flexible to accommodate a lower rate while preserving profitability and service quality. In real markets, the story is more intricate. Some funds maintain relatively high charges despite large asset bases because they rely on costly active management, sophisticated risk models, or premium distribution arrangements that support a differentiated product proposition. Other funds, particularly in the passive segment, routinely push down prices via competitive pricing strategies, but their margins may be razor-thin, making them sensitive to swings in asset flows, regulatory changes, or shifts in platform fees.
Analyses such as those conducted by AJ Bell add a valuable dimension to this debate by challenging simplistic expectations about how fees should fall with fund size. They point out that the cost structure of funds can be influenced by many levers, including the choice of sub-advisers, the breadth of service ecosystems, and the degree of customization offered to investors. For example, newer, smaller funds can incur substantial fixed costs that are amortized over time as assets grow, potentially resulting in higher charges in the early stages. This reality complicates the narrative that size alone inexorably leads to fee reductions. The AJ Bell lens emphasizes that fees are a function of multiple variables, including governance quality, risk management sophistication, distribution channels, and the extent to which vendors compete on price versus the delivery of value-added services.
From an investor education perspective, the AJ Bell analysis encourages a more holistic approach to evaluating fees. It underscores the importance of looking beyond the headline expense ratio and examining the total cost of ownership. This includes platform charges, trading or transaction costs, bid-ask spreads, any performance-related fees, and the potential impact of reinvestment policies on overall returns. It also invites consideration of non-monetary factors that contribute to value, such as the availability of robust customer support, transparent reporting, ease of access to information, and the reliability of execution and settlement processes. By adopting a broader frame, investors can better identify products that deliver meaningful value for money over the long term, even if they appear to carry higher charges at first glance.
Practical implications for investors and fund managers
The AJ Bell perspective highlights a central implication for both fund managers and investors: the need for clarity, consistency, and alignment between costs and perceived value. Fund managers are incentivized to design fee structures that reflect the value delivered, including the quality of research, risk management, and client servicing. This alignment can help maintain investor trust even as asset bases scale. For investors, the implication is to conduct a comprehensive cost assessment that accounts for all elements of the investment experience. Investors should consider whether a lower headline fee accompanies trade-offs in other areas, such as narrower investment choices, less favorable execution quality, or reduced reporting and transparency. In markets where fund value assessments are gaining traction, there is a strong impetus for both sides of the market to demonstrate that price concessions are matched by tangible improvements in outcomes, services, and communications.
In addition, the regional and lifecycle nuances described above suggest that an effective investment strategy should be flexible and adaptive. A one-size-fits-all approach to charging and product selection is unlikely to yield optimal results for a diverse investor base. Instead, investors may benefit from a blended approach that prioritizes low-cost core holdings while reserving a portion of the portfolio for carefully selected higher-value products that meet specific objectives, whether those objectives relate to niche market exposure, risk management capabilities, or specialized tax considerations. This balanced approach can help ensure that the overall cost profile remains attractive, even as the investor’s needs evolve and market conditions shift.
Putting it all together: a nuanced cost landscape
When all these factors are considered together, the global cost landscape for funds appears as a spectrum rather than a single trajectory. On one end lies the broad-based, low-cost appeal of passive strategies that have benefited most directly from scale, competition, and technological efficiencies. On the other end sits a range of more complex products—some active, some boutique, some niche—that require deeper research, bespoke distribution, and higher transactional or governance costs. In between, there are products with evolving fee architectures, driven by policy changes such as fund value assessments, platform innovations, and shifting investor expectations around value-for-money. For investors, the practical takeaway is to approach fee analysis with a multi-dimensional lens: consider headline charges, the total cost of ownership, the quality and accessibility of services, and the likely path of costs as funds scale or as new products reach maturity.
Implications for investors and fund managers
The nuanced fee landscape outlined by Morningstar and echoed by AJ Bell analysis has several practical implications for both investors and fund managers. For investors, the key takeaway is to move beyond headlines and to examine the real, all-in cost of ownership, including ongoing charges, platform fees, and any ancillary costs that may erode net returns over time. It is also important to assess the value delivered relative to charges, including factors such as risk management, liquidity, transparency, and the accessibility of timely information and robust customer support. A cost-conscious investing approach should incorporate a disciplined framework for evaluating whether lower fees genuinely translate into higher net returns after accounting for all costs.
For fund managers, the evolving fee environment underscores the necessity of transparent pricing strategies and demonstrable value. Managers should structure fees in a way that reflects the services provided and the outcomes achieved, rather than relying solely on competitive discounting. In markets where regulatory bodies emphasize value-for-money and where investors increasingly demand clarity, managers may need to place greater emphasis on reporting, disclosures, and performance attribution to justify fee levels. The trend toward fund value assessments in places like the UK illustrates the growing expectation that charges be tied to tangible benefits, which can influence pricing decisions, product design, and client communications.
The broader industry implication is a call for ongoing refinement of product design, distribution models, and cost management practices. As the market continues to evolve, stakeholders may see more emphasis on streamlined administration, improved data quality, and enhanced investor education to facilitate informed decision-making. The result could be a more efficient market where fee structures are visibly linked to outcomes and where competitive dynamics reward those that consistently deliver value at reasonable costs. These developments, in turn, support a healthier run for long-term investing, enabling investors to build diversified portfolios without bearing disproportionate costs relative to the benefits received.
The road ahead for pricing, transparency, and value
Looking forward, investors and fund managers can anticipate continued attention to pricing, transparency, and demonstrable value. As passive funds remain central to many portfolios and as regulators push for clearer disclosures, ongoing cost reductions in the low-cost segment are likely to persist, with potential spillover into related products. At the same time, products offering greater complexity or targeted outcomes may maintain higher charge levels where the value proposition is compelling and where capital inflows justify the added costs. The critical balance will be maintaining affordability while ensuring that investors access high-quality investment management, credible risk controls, and reliable customer service. Morningstar’s insights, together with AJ Bell’s nuanced analysis, provide a framework for evaluating this balance and for making informed, evidence-based decisions that align cost with value.
Conclusion
The Morningstar Global Investor Experience report presents a multi-dimensional view of fund fees, highlighting a general trend toward lower costs driven by price competition in the passive arena and enhanced market transparency, including the UK’s fund value assessments that increase price scrutiny. Yet the report also cautions that fee reductions are not uniformly distributed, with some regions and fund types maintaining higher or more stubborn cost structures due to structural factors, market maturity, and the specifics of fund design. The AJ Bell analysis reinforces the notion that the relationship between fund size and charges is not straightforward; economies of scale and fixed costs interact with product complexity, distribution realities, and governance standards in ways that can sustain higher costs in certain contexts.
For investors, the practical implication is to adopt a holistic approach to cost assessment, looking beyond headline expense ratios to the full cost of ownership and the value delivered. For fund managers, the message is to align pricing with demonstrable outcomes and services, particularly in markets where value-for-money evaluations are gaining prominence. Taken together, these dynamics point toward a market environment that continues to push for lower costs and greater transparency, while also demanding clear justification of charges through tangible benefits and high-quality investor support. In a world where price competition remains a powerful driver of change, investors who equip themselves with comprehensive cost analysis and a keen eye for value are well positioned to navigate the evolving landscape and pursue favorable long-term investment outcomes.
