With investors consistently and rather alarmingly rushing to the exits of equity mutual funds ever since the May 6 Flash Crash-shareholders have yanked $72.9 billion out of stock funds-asset managers are aggressively reducing fees at an unprecedented rate.
Now that some of the biggest names in the mutual fund industry have started shaving fees, the trend is likely to continue, especially because investors' risk appetite doesn't appear to be returning anytime soon (see "Less Than One-Third of Investors Ready for Risk," page 4).
The Hartford Mutual Funds reduced expenses on 36 of its funds over the summer and last week, extended the reductions to six of its fixed income funds, the biggest cut being a 15-basis-point break on the gross expenses on Class A of The Hartford High Yield Fund, now priced at 1.25%.
Effective Oct. 15, Vanguard is lowering the all-in costs of its age-based options in the Vanguard 529 College Savings Plan, sponsored by the state of Nevada, between 44 basis points and 25 basis points. The 19 other 529 options that Vanguard offers on other platforms will see also reductions, between 19 and 22 basis points. Vanguard estimates these reductions will save more than 100,000 clients $8.5 million a year.
In June, Charles Schwab reduced the expense ratios on eight of its exchange-traded funds between two and 10 basis points. The same month, Van Eck cut fees on three of its Market Vectors ETFs, between six and 21 basis points.
And on Tuesday, Ameriprise announced that its planned restructuring of the Columbia Funds family that it acquired from Bank of America in April, inclusive of fee reductions and mergers among 71 funds, will save shareholders $30 million a year.
Affluent investors are getting a break, too. Brown Brothers Harriman Trust cut the net expense ratio on the BBH Core Select mutual fund, aimed at younger members of its wealthy families, by 19 basis points to 1.0%.
Sean Collins, senior director of industry and financial analysis at the ICI, said that due to the equity fund outflows, "There is increasingly intense competition for the money that is there."
With the erosion of proprietary trading desks, declining trading volume and a return to traditional access to capital, margins are going to be smaller. Declining fees on equity funds aren't going to help profits, either.
Welcome to the fund industry's "new normal."