4 Fund Fee Trends to Watch in 2025

Declining fund fees continue to line investors’ pockets.

We estimate that investors saved $5.9 billion in fund expenses last year compared with 2023. Heavy inflows into the cheapest funds nudged the average fee US fund investors paid in 2024 down to 0.34% from 0.36% a year prior.

With over $30 trillion held in US mutual funds and exchange-traded funds, any decline—no matter how small—represents significant cost savings for investors.

Underneath those headlines are several notable trends and stories that developed in 2024 and so far in 2025:

• Investors plowed money into cheap index ETFs amid recent market turbulence. If sturdy inflows continue, the average fee fund investors pay should decline further in 2025.
• Vanguard, already the low-cost leader, slashed fees on 168 share classes in February 2025, saving its investors an estimated $350 million just this year.
• ETFs remain far cheaper than mutual funds, on average, but the gap is narrowing.
• New ETFs are more expensive than they used to be. This is due to the emergence of higher-cost investment strategies relatively new to the ETF wrapper.

Morningstar’s 2024 US Fund Fee Study covers some of these trends in more detail and much more of what transpired across fund fees last year. Below, I dig into several interesting findings from the report and consider the forces that will shape future trends.

Fund Fees Drive Flows

Investors continue to prefer low-cost funds. In 2024, the gap in flows between the cheapest 20% of funds and the most expensive 80% was nearly $1.2 trillion. This is the second-largest gap in the last 20 years.

The cheapest quintile gathered $930 billion in new money while the remaining 80% lost a collective $254 billion in outflows.

Passive funds, which include low-cost index ETFs, consistently collect the most inflows.

The cheapest quintile of such funds collected $2.8 trillion of inflows since 2021. More expensive passive funds and cheap active funds also saw slight inflows, but investors in high-cost active funds ran for the exits. They pulled a collective $1.4 trillion out of the priciest 80% of actively managed funds over the last four years.

Vanguard Remains the Low-Cost Leader

Vanguard is a unique firm. Structured as a mutual, instead of a standard corporation, the company’s duty is to its fundholders and not its shareholders. This novel structure is frequently cited as a reason for its dominance and is likely why it continues to lower fees on its already very-low-cost suite of ETFs and mutual funds.

In 2024, the average fee Vanguard fund investors paid was just 0.07%, the lowest of any asset manager and less than half of what the average iShares fund investor paid.

Investors clearly love low-cost funds and low-cost providers. Vanguard boasts the largest fund family by assets, but investors in several other large fund families also pay relatively low fees. Four of the largest five fund families were among the five cheapest in 2024, ranked by the average fee its investors paid, or its asset-weighted average fee.

The Largest Firms Tend to Charge the Least

The asset-weighted average fee was less than the equal-weighted average fee for all 10 of the largest fund families. The equal-weighted average fee represents what firms charge investors irrespective of asset level in each fund.

This shows that investors favor cheap ETFs and mutual funds from whatever company they buy from. For some, like Dimensional Fund Advisors, this gap between equal-weighted and asset-weighted average fee is small, reflecting a similarly priced fund lineup. While for others, like Fidelity, it’s much larger. Fidelity’s equal-weighted average fee in 2024 was 0.79% while its asset-weighted average fee was just 0.27%. This difference reflects substantial assets in several of their low-cost index mutual funds.

ETFs Are Cheaper, but Mutual Funds Are Gaining Ground

An ill-fated prediction of mine for 2024 was that ETF fees would reverse trend and increase. My logic was that average fees would rise alongside the proliferation of more expensive active and alternative ETFs. Fees charged by firms (equal-weighted average fee) and fees paid by investors (asset-weighted average fee) both remained roughly flat from 2023 to 2024.

After years of steady decline, the average fee investors paid for ETFs settled at 0.16% in 2023 and 2024 while mutual funds continued to get cheaper. The average fee investors paid for mutual funds declined from 0.86% in 2005 to 0.42% by 2024’s end, falling slightly from 0.44% a year prior. The long-term fee declines for both groups represent major cost savings for investors, but until the red and blue lines cross, ETF investors are still getting a better deal.

The fee gap between new mutual funds and new ETFs has narrowed over the past decade. Since 2015, the average fee charged by new ETFs rose by 11% while new mutual funds got 22% cheaper. Newly launched ETFs are still less expensive than new mutual funds, however.

Despite an uptick in 2024, the average fee gap between new mutual funds and ETFs has narrowed. The emergence of higher-cost active and alternative ETFs may keep the average fee of new ETFs higher than its long-term average, but until investors tire of low-cost index ETFs, which seems unlikely, it may take time for any increase to materialize.

What’s New for Fund Fees in 2025?

Investors clearly love low-cost funds. That remained true in 2024 and should stay true in 2025 and beyond. But there’s little fee revenue left to go around. Vanguard already charges almost nothing for many of its index funds and ETFs. Fidelity even launched a suite of zero-fee index mutual funds in 2018.

Given the intense competition among this low-margin cohort, there’s been a subtle, or not-so-subtle, push from firms into more complicated, and more expensive, investment strategies. Investors are slowly catching on, too.

These strategies, which include options-based ETFs, public/private vehicles like interval funds, and other new developments, charge high fees compared with the cheap index funds investors have historically preferred. Assets in these emerging products are growing but they still represent a small piece of the pie. Some firms are trying to expedite that growth.

BlackRock’s CEO Larry Fink noted in his 2025 annual letter to investors that the standard 60/40 portfolio may one day look more like 50/30/20. That’s 50% in stocks, 30% in bonds, and 20% in private assets. Relatively few private asset investments are currently available to most investors, and BlackRock is one of several firms trying to bring private assets to the masses.

Fund Fee Trends to Watch

Keep an eye on the growth of once-novel investment strategies and the industry’s push into higher-cost areas. Investors should continue seeking low-cost funds and avoid paying unnecessarily high fees for complicated products. Some higher-cost funds and ETFs may prove beneficial for investors, but any benefit should match the higher cost.

The strategies in question are still relatively small but are gaining steam. Any major shift in trends likely won’t show up in the data for some time even if the headlines are already here. Cheap funds are a $20-trillion gorilla, and it will take a lot to move even a fraction of that to higher-fee products.