What Morningstar Told Congress About Fund Fees and Investor Outcomes

Investors are voting for low-cost funds with their dollars.

Jeffrey Ptak, managing director at Morningstar, came with the data for a Congressional hearing on investing in America. He testified before the US House Subcommittee on Capital Markets on how fund structure, cost, and manager behavior affect investor outcomes.

“I’ve spent two decades studying how Americans invest,” Ptak said. “Over that time, we’ve seen a clear and encouraging pattern: when costs fall, transparency rises, investors have access to better tools, and outcomes significantly improve.”

Here’s what American policymakers heard about fund fees and investor behavior, and what advisors should take away from the current state of American investing.

For more, read Ptak’s statement in full.

Cost is the most reliable predictor of fund outcomes, Morningstar research consistently shows.

Lower-cost funds consistently outperform higher-cost peers across asset classes and time periods. About 31% of the lowest-cost active funds outperformed their average passive peer over the past decade ending December 31, 2025, compared to just 17% of the most expensive.

“The smaller the fee investors pay, the more they can keep, and the more wealth they can build over the long term,” Ptak explained.

Expensive funds have a higher hurdle to clear. For example, semiliquid funds, which offer access to both public and private investments, often cost more than public-market counterparts and come with complex fee structures.

That indicates advisors should:

• Carefully evaluate fees and expenses during the due diligence process. That especially applies to public/private investment vehicles like interval funds or non-traded business development companies, which may come with a higher price tag than investors expect.
• Evaluate lower-cost alternatives when building or rebalancing portfolios. Financial advisor tools can assess a funds’ historical adjusted expense ratios against the category to see how it has kept pace with the industry’s declining costs.

In many contexts, investors are voting with their dollars. Flows are overwhelmingly concentrated in the lowest-cost funds while higher-cost funds continue to see sustained outflows.

In 2025, investors moved nearly $694 billion into the lowest-cost funds while pulling about $244 billion from higher-cost funds.

Financial advisors have been a key driver of this narrative. The transition to a fee-based model and low-cost index fund recommendations is working for real investor outcomes.

“Investors are allocating capital more efficiently,” Ptak told Congress, “favoring lower-cost, better-performing funds and avoiding some of the mistakes that historically weighed on their returns.”

The average fee paid by fund investors has fallen dramatically from about 0.80% two decades ago to 32 basis points in 2025. Our analysts estimate investors saved around $6.8 billion in fund fees last year alone.

Based on the data, advisors should:

• Be transparent about fees. For new clients, explain the types of fees in their current and proposed portfolios—purchase, ongoing, and redemption—and illustrate how they’ll add up over time.
• Put higher-fee funds in context. Morningstar’s Fee Level data point compares expense ratios against funds that invest in the same asset class with similar fee structures. In conversation, that could sound like: “This fund has a fee level of Below Average, which means it’s less expensive than 60% of similar funds.”

Most active managers underperform their passive counterparts, but success varies by category.

Over the past decade, low-cost passive funds have outperformed nearly 80% of active funds overall and roughly 90% of US large-cap funds. However, skilled active management still adds value in areas where markets may be less efficient.

“This story is not one of total replacement,” Ptak said. “Active managers can and do add value in certain segments, most notably in fixed income as well as select equity categories.”

Of note, fund fees have also been falling for new active offerings. Fewer launches have led to a smaller dispersion in fees, indicating newer entrants may be competing more heavily on price.

For advisors, that means being upfront about the “why” when recommending active funds. Is the fund in a market niche where manager skill pays off? Does the fund manager have a long tenure and a proven investment process? Have they delivered higher risk-adjusted returns in the past?

In retirement accounts, low-cost, automated solutions are working for investors by taking market timing out of the equation. Over the decade ending December 31, 2024, investors in allocation funds (like target-date funds) captured nearly 97% of their funds’ total returns, compared to the 85% captured by the average fund investor.

“Target-date funds combine low cost, diversification, and automation in a way that’s well aligned with long-term investor needs,” Ptak told Congress.

The value of target-date funds comes from more than the declining fees. Target-date funds encourage investors to stay the course and invest consistently, avoiding the high trading volume that can affect returns.

That success underscores the value of behavioral coaching. By keeping investors on track through market volatility, financial advisors add value that goes beyond returns.

Ptak attributes the gains of the past two decades to “deliberate policy choices that created the conditions for greater investor success.”

That includes federal policies around greater fee transparency, comparable disclosures, and the expansion of accessible, low-cost investment structures.

Without continued stewardship, he says, the benefits—transparency, fee competition, access—will erode.