Also, in an effort to be more competitive with ETFs and separate managed accounts, mutual funds are broadening the investors eligible for lower-cost share classes, the report said.
Among ETF issuers, 89% said in a Cerulli survey that they feel the impact of fee compression and plan to pursue greater scale to offset the trend.
"One of the more creative ways that larger issuers are building scale is by providing advisors with asset allocation models built using their own ETFs as underlying building blocks," Cerulli said.
ETFs are also constructing their own indexes in-house rather than paying licensing fees to outside firms, the report said.
Cerulli also noted that fee compression is a growing issue for both retail and institutional managers.
“Neither active nor index managers will be exempt from these trends,” Powers said. “To adapt, managers need to continue to evaluate the cost of their investment strategies against their peers and consider all potential solutions to address this reality."