Fees aren't the only cost of investing

Investors too focused on fees may miss out, and find strings attached

Andrew Willis 13 May, 2019 | 2:00PM

Low fees are good for investors. Each dollar left over after fund companies take their cut is a dollar that continues to compound in the interest of the investor. It’s something we stand by at Morningstar, but the same alignment around investor interests has us cautioning against focusing only on fees and ignoring the other costs of investing.

Admittedly, it’s hard not to focus on fees when ETF and mutual fund providers continue to wage a highly visible ‘fee war’ against one another. Their mission for greater market share is taking the route of the latest and cheapest new product, hitting headlines in a time of greater investor awareness, evolving advice models and un-bundling of embedded fees, described in a U.S.-focused recent study by Ben Johnson, Director of Global ETF Research at Morningstar.

The fee war made its way up to fund managers largely through an evolution in the advisor business, says Johnson in the study. “The evolution of the economics of the advice business is shaping flows and fees. As advisors move away from transaction-driven compensation models and toward fee-based ones, share classes that have fewer embedded advice and/or distribution costs are seeing more flows.”

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Andrew Willis

Andrew Willis  Andrew Willis is a content editor for Morningstar.ca.