ETF: The ETF fee revolution

In ETF Blog, Latestby Simon Brown

ETF fee revolution

ETF fee revolution

Passive investors in South Africa find themselves in an amazing space regarding fees. I still remember my first unit trust I bought in about 1996. The annual fee was over 5% and that was before performance fees (it never performed so I never paid that fee).

I eventually sold it a few years later and started buying Satrix40 when they listed in December 2000. I liked the Satrix40 because it was passive, but also because it had what were crazy fees for the time. I can’t remember the exact fee, but it was around 1%, fully 80% lower than my dismal unit trust.

Now almost two-decades later and there isn’t one listed Exchange Traded Fund (ETF) with a fee over 1% with the lowest coming in at 0.1% and I think in time we’ll get a zero-fee local ETF. It’ll most certainly be one of the larger local ETFs and probably more as a marketing tool. But boom. Investing for zero will always be grand.

We can also get passive retirement annuities at 1% or lower and tax-free investment with brokerage fees starting at 0.2% and zero admin fees at some providers. 

We live in a wonderful world for passive investors. Those lower fees directly translate into more money for us as we pay less every year for our investments and the trend for fees remains firmly down as witnessed by a number of US brokerages dropping transaction fees to zero earlier this month and a negative fee ETF (purely a marketing deal – but still great).

The one side effect of these great low fees is we all become fee obsessed. We worry about paying an extra fee on an ETF when one exactly (or almost exactly) the same is cheaper by say 0.1%.

Now sure even that 0.1% will make a difference in the decades to come, but the trend is down and the more expensive will in time drop their fee. In fact, every ETF issuer I speak to is talking about dropping their ETF fees even lower.

So, while we’re sweating the slightly higher fee on one ETF vs. another let’s also remember and celebrate the wild low fee world we live in right now. 

We are truly living through a revolution on fees and all passive investors are the winners.

Simon

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