Why Are Mutual Fund Costs Dropping?

One of the great concerns of the mutual fund industry has long been the problem that the best-managed funds tend to carry heavy fund expenses along with them. Many expensive funds have roped in investors with promises of strong returns, then continued to collect those expenses even if the performance didn't warrant it. The good news is, though, that investors have proven to be too savvy to allow this to go on for very long.

That's the conclusion of a new study from the Investment Company Institute, which has been tracking mutual fund expenses over time. The ICI found that investors regularly flee high-expense funds that don't prove to be worth the extra money, which has the effect of bringing down expenses for all funds. Back in 2003, the average expense ratio paid by fund shareholders was 0.99 percent. It fell pretty consistently throughout the decade, though, and in 2010 was down to 0.84 percent.

When funds have to compete on those costs, prices fall for everyone. That means that actively managed funds of the kind we use here at Echelon Wealth Strategies are not only competitive on price, but getting more competitive all the time.