That's partly
because index fund fees run around 1.0 % of assets per year, compared to 2.5 % or more on many broker - sold mutual funds.
And so more advisors are using low fee index funds but then charging a 1 % management fee on top of the
low index fund fee.
This is because
index fund fees of 0.1 % on $ 250K is still $ 250 per year, which is equivalent to 31 trades at $ 8 / trade!
Allegations of excessive
index fund fees in retirement plans are at the heart of a new proposed class action lawsuit brought by New York Life Insurance Co. employees against the company.
Active managers with true skill (in excess of their fee structure) are hard to identify, so investors are better off with an index fund
The
average index fund fees come in around 0.17 percent, compared to the average 0.75 percent fees on actively managed funds, according to Morningstar.
This is because
index fund fees of 0.1 % on $ 250K is still $ 250 per year, which is equivalent to 31 trades at $ 8 / trade!
Note that
the index fund fees in absolute dollars will only increase as your account size grows each year.
Index fund fees are usually lower than those of managed funds.
Though Colby Penzone, senior vice president for Fidelity's investment product group, says the company still believes «in the powers of active management and the value it can provide our customers,»
the index fund fee cut is «hugely significant,» says Fidelity Investor editor Jim Lowell.
The entire group of investors will earn the market rate of return, and the average will be negatively offset by active management fees that are higher than
index fund fees.
Vanguard has a $ 3,000 minimum and will also charge a $ 10 per year maintenance fee on accounts less than $ 5,000 as well as
an index fund fee of $ 2.50 per quarter or $ 10 per year (depending on the fund).
Of course, apples to apples comparisons of
index fund fees with ETF fees aren't exactly fair to begin with.
Mutual funds might take as much as 1.5 percent in fees, but
index fund fees are much lower: closer to 0.2 percent.
To get an idea of mutual fund and
index fund fees, in a June 24, 2015 study, Morgan Stanley found that the average dollar - weighted expense ratios of actively managed were:
Note that
the index fund fees in absolute dollars will only increase as your account size grows each year.
As with other robos, the underlying ETF or
index fund fees must be taken into account as well.
Index fund fees, however, vary widely.