March 26, 2025
Diamond Consultants Transition Report Quoted
By Leo Almazora
Fees on mutual funds and exchange-traded funds have continued their decades-long decline, fueled by investor demand for lower-cost products, the rise of index investing, and the ongoing shift away from 12b-1 fee structures.
According to a new report from the Investment Company Institute, the average expense ratio for equity mutual funds has dropped by 62 percent over the past twenty-eight years – from 1.04 percent in 1996 to 0.40 percent in 2024. Bond mutual fund expenses saw a 55 percent drop over the same period, down to 0.38 percent. Hybrid mutual funds averaged 0.58 percent last year.
A turning point in the use of 12b-1 fees came in 2020, when the SEC cracked down hard on disclosures surrounding payments funds make to financial advisors. More recently, those fees became a flashpoint for drama at UBS, which near the end of last year revealed plans to change how it compensates advisors. In January, an executive at the firm admitted it was struggling with advisor retention, and one report from Diamond Consultants this month predicted it would be “the biggest loser of advisor share in 2025.”
“We predict this will be the proverbial straw that breaks the camel’s back for many, and attrition from UBS may well exceed 10% of all US advisors,” the report said. “It remains to be seen if the firm will walk back some of the changes, especially cuts to 12b-1 fees.”According to ICI, more advisors are now paid through asset-based fees billed outside the fund itself, rather than via commissions or revenue-sharing structures. That transition has led to wider use of clean share classes with lower expense ratios, particularly among fee-based practices and retirement plan platforms. The growing popularity of online brokerages and the expansion of workplace plans like 401(k)s have also played a role in steering investors toward lower-cost, no-load funds.
