Passive ETF fees have further to fall while active ETF fees could tick up slightly, according to a whitepaper from financial solutions firm Broadridge.
The paper identifies two potential sources of downward pressure on passive ETF fees.
The first is market-based. If product providers adopt the low-cost models seen in the US, fees for passive ETFs are likely to drop in Europe.
Devin McCune (pictured), vice president, board solutions at Broadridge told ETF Stream: “We’ve really seen a race to zero in the US. Compared to Europe, there are far more ETFs in total and a reasonable number that are either low cost or no cost. We haven’t seen that come across yet.”
The second is regulatory. If the Retail Investment Strategy (RIS) passes into EU law, a proposal to safeguard and empower retail investors, ETF issuers will “have to do some form of value-for-money benchmarking and you’ll see some level of fee decreases from the regulatory side,” said McCune.
As it stands, the EU Council and EU Parliament have formalised their divergent negotiating positions and will bring them to the table in the coming months, where the compromise – if one is found – will be adopted as formal EU legislation.
On the other hand, the whitepaper argues active ETF fees could tick up slightly, particularly in more niche exposures, opening up a wider gulf between passive and active fees.
“We are starting to see active ETFs coming out being priced at a slight premium to the first wave of active ETFs to come to market,” said McCune.
If that trend continues active ETF fees could rise, he added, noting that packaging active private investments is a hot discussion topic in the market.