Report Card: Grading the Investor Experience in 26 Global Markets
Why the U.S. is one of only three markets to earn a Top grade for practices related to fees and expenses.
Global fund fees continue to trend downward, as the majority of the 26 markets we studied--including the United States--have seen asset-weighted median expense ratios for funds fall since our last analysis.
In the Fees and Expenses chapter of the latest Global Investor Experience study, we evaluate the environment for mutual fund investors in markets around the world, identifying the ones that are adopting best practices and the ones that need to improve.
As shown below, the highest overall grades went to Australia, the Netherlands, and the U.S., while Italy and Taiwan earned Bottom grades. This is the fourth study in a row that these three countries have nabbed the highest grade; it's the third in which Taiwan came in at the bottom and the second in succession for Italy.
In this report, we detail the market characteristics that drive increased transparency and lower global fund fees for retail investors. Here's what we're seeing.
The U.S.' Top grade was driven largely by low asset-weighted median expenses across asset classes: 0.43% on fixed-income funds, 0.58% for allocation, and 0.63% for equity funds.
The U.S. investing environment is also benefiting from the growth of the fee-based advice market and the broad availability of no-load, no-trailer share classes for do-it-yourself investors.
Though front loads and trail commissions still exist, market forces are driving investments away from share classes that employ these traditional fee arrangements. As reported in our most recent fee study, these share classes have been in aggregate outflows for the past 10 years.
And investors' migration to fee-based advisors has led fee-based arrangements to constitute most of the retail fund assets in the U.S. In addition, it's increasingly common for investors to forgo advice entirely and invest directly in funds without loads or commissions.
This move toward fee-based, self-directed investment also means people are making good use of domestically listed exchange-traded funds. These funds lack the minimum investment requirements of open-end funds and feature prominently in digital advice solutions such as robo-advisors.
It's worth noting the influence that Vanguard has on the U.S. fee landscape. The firm offers numerous passive strategies and operates at enormous scale in a mutual ownership structure, which make it possible for them to offer investments to their clients at exceptionally low prices. The firm's size and influence have thus pushed down pricing more widely.
Fees and Expenses is the first of three chapters in this edition of the Global Investor Experience study. Up next is Disclosure, followed by Regulation and Taxation.
More details about the Global Investor Experience Study's methodology are available on the Signature Research and Methodology page.