Morningstar Publishes Global Study of Fees and Expenses in the Fund Industry, Finds Fees Continue to Fall, Yet Room for Improvement in Industry Structure Remains

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Australia, the Netherlands, and the United States again earned Top grades in the first chapter of the Global Investor Experience Study; Italy and Taiwan received Bottom grades once more 

CHICAGO, March 30, 2022 /PRNewswire/ -- Morningstar, Inc. (Nasdaq: MORN), a leading provider of independent investment research, today published the first chapter, "Fees and Expenses," of its biannual Global Investor Experience (GIE) report. The report, now in its seventh edition, assesses the experiences of mutual fund investors in 26 markets across North America, Europe, Asia, and Africa. The "Fees and Expenses" chapter evaluates an investor's ongoing cost to own mutual funds compared to investors across the globe. 

Morningstar's manager research team uses a grading scale of Top, Above Average, Average, Below Average, and Bottom to assign a grade to each market. Morningstar gave Top grades to Australia, the Netherlands, and the United States, denoting these as the most investor-friendly markets in terms of fees and expenses. Conversely, Morningstar again assigned Bottom grades to Italy and Taiwan indicating these fund markets have amongst the highest fees and expenses. 

"The good news for global fund investors is that in many markets, fees are falling, driven by a combination of asset flows to cheaper funds and the repricing of existing investments," said Grant Kennaway, head of manager selection at Morningstar and a co-author of the study. "The increased prevalence of unbundled fund fees enables transparency and empowers investor success. However, the global fund industry structure perpetuates the use of upfront fees and the high prevalence of embedded ongoing commissions across 18 European and Asian markets can lead to a lack of clarity for investors. We believe this can create misaligned incentives that benefit distributors, notably banks, more than investors." 

The first chapter on "Fees and Expenses" is available here. Highlights include: 

• The majority of the 26 markets studied saw the asset-weighted median expense ratios for domestic and available-for-sale funds fall since the 2019 study. For domestically domiciled funds, the trend was most notable in allocation and equity funds, with 17 markets in each category reporting reduced fees.
• Lower asset-weighted median fees are driven by a combination of asset flows to cheaper funds as well as the repricing of existing investments. In markets where retail investors have access to multiple sales channels, investors are increasingly aware of the importance of minimizing investment costs, which has led them to favor lower-cost fund share classes.
• Outside the United Kingdom, the U.S., Australia, and the Netherlands, it is rare for investors to pay for financial advice directly. A lack of regulation towards limiting loads and trail commissions can cause many investors to unavoidably pay for advice they do not seek or receive. Even in markets where share classes without trail commissions are for sale, such as Italy, they are not easily accessible for the average retail investor, given that fund distribution is dominated by intermediaries, notably banks.
• The move toward fee-based financial advice in the U.S. and Australia has spurred demand for lower cost funds like passives. Institutions and advisers have increasingly opted against costlier share classes that embed advice and distribution fees. The trend extends to markets such as India and Canada.
• Price wars in the ETF space have put downward pressure on fund fees across the globe. In the U.S., competition has driven fees to zero in the case of a handful of index funds and ETFs, and these competitive forces are spreading to other corners of the fund market.
• Australia, the Netherlands, and the U.S. earned top grades due to their typically unbundled fund fees. This is the fourth study in a row that these three countries have received the highest grade in this area.
• In markets where banks dominate fund distribution, there is no sign that market forces alone will drive down asset-weighted median expense ratios for retail investors. This is particularly evident in markets like Italy, Taiwan, Hong Kong, and Singapore where expensive offshore fund sales predominate over those of cheaper locally domiciled funds.
• The U.K. has introduced annual assessments of value, one of the most significant regulatory developments since the 2019 study. These require asset managers to substantiate the value that each fund has provided to investors in the context of the fees charged.

Methodology 
The GIE study reflects Morningstar's views about what makes a good experience for fund investors. This study primarily considers publicly available open-end funds and exchange-traded funds, both of which are typical ways that ordinary people invest in pooled vehicles. As in previous editions, for this chapter of the GIE study, Morningstar evaluated markets based on the asset-weighted median expense ratio by market in addition to the structure and disclosure around performance fees and investors' ability to avoid loads or ongoing commissions. The study breaks up the markets into three groups of funds: allocation, equity, and fixed income. The expense ratio calculations consider two perspectives: funds available for sale in the marketplace and funds that are locally domiciled. In this most recent study, we have adjusted the assets used in the weightings for available-for-sale funds in each market to better reflect the propensity of domestic investors to invest in nonlocally domiciled share classes.  

About Morningstar, Inc. 
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The Company offers an extensive line of products and services for individual investors, financial advisors, asset managers and owners, retirement plan providers and sponsors, and institutional investors in the debt and private capital markets. Morningstar provides data and research insights on a wide range of investment offerings, including managed investment products, publicly listed companies, private capital markets, debt securities, and real-time global market data. Morningstar also offers investment management services through its investment advisory subsidiaries, with approximately $265 billion in assets under advisement and management as of Dec. 31, 2021. The Company has operations in 29 countries. For more information, visit www.morningstar.com/company. Follow Morningstar on Twitter @MorningstarInc. 

Morningstar's Manager Research Group consists of various wholly owned subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC. The grades assigned for each market are derived from a qualitative assessment process performed by manager research analysts. The grades referenced in this release and report are assessments, thus are statements of opinions and are not to be considered as guarantees. This press release and the Global Fund Investor Experience report is for informational purposes only. 

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