Investors paid less to own mutual funds and ETFs in 2016, but the impact of the Department of Labor’s fiduciary rule has not yet been felt, according to a recent report.
While a massive amount of assets has flowed out of traditional mutual funds in recent years, not all funds are sharing the same fate, according to recent research from the Washington-based Investment Company Institute (ICI). In the most recent ICI Research Perspectives, an annual analysis of fund flows and expense ratios, no-load mutual fund share classes enjoyed $113 billion of net inflows during 2016, while approximately $232 billion flowed out of load mutual fund share classes.
In 2016, the ICI attributed most of the average expense ratio reductions to the shift toward low-cost, efficient and passive investing strategies, including a preference for no-load share classes. The movement away from commission-based compensation models and towards fee-based or fee-only financial planning has also contributed to the downward trend in expense ratios. Nevertheless, the ICI says that the impact of the Department of Labor’s fiduciary rule on expense ratios has thus far been “coincidental.”
Even through the industry’s crescendo of concern over the fiduciary rule in 2016, average expense ratio reductions across asset classes did not greatly exceed those recorded in recent years. For example, the average equity mutual fund expense ratio declined 4 basis points in 2016, the same decline reported in 2014, 2011, 2010 and 2009.
Index mutual funds and ETFs now account for 27.2 percent of the total assets in the fund universe, according to the ICI, dramatically increasing from 2005. With many market participants now favoring inexpensive, simple investment solutions, the movement towards no-load share classes has caused expense ratios of both passive and active mutual funds to drop over time.