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Fund Spy

Expense Ratios Are Falling

Overall, fund investors are paying less for fund management.

Expense ratios have come down for investors over the past two years. The driver was appreciation in fund values, which drove up asset levels and in turn triggered built-in cuts in management fees.

The annual expense ratio is an average of the expense ratio charged by funds over that time. Typically, that figure rises and falls as assets grow and shrink. The reason is that funds typically have breakpoints in management fees so that, above a certain threshold, they will charge less on additional dollars managed. A second related force at work for funds is that other fees that go into expense ratios are set on a firmwide asset level basis. Thus, when you have huge market moves such as the 2008 bear market or the 2009-10 rebound, you'll see significant adjustments to other fees, too.