The average expense ratio paid by investors fell by 4 basis points last year to 0.57%, according to a Morningstar study released Tuesday.
Though the largest 2,000 funds had an average asset-weighted expense ratio of 0.72%, investors are paying less by moving into ETFs and other low-cost options, mainly passive index funds. The asset-weighted average cost of passive funds is 0.17% as of 2016 vs. 0.75% for active products.
Thus, Morningstar points out, as investors move more money into passive products, the average asset-weighted drop in fund fees in 2016 hit 7%, the biggest fall since 1990, when the research firm started compiling the data.
"This indicates that the decline in average mutual fund fees paid by investors stems largely from investors' migration to lower-costs funds and not from fee cuts by the fund management industry," Patricia Oey, senior analyst at Morningstar, said in the report.
Vanguard leads the way when it comes to low expenses with an asset-weighted average expense ratio of 0.11% in 2016. Its nearest rival is SPDR State Street at 0.19%.
Over the past three years, Vanguard's average fee declined a total of 21%, the largest drop amount the biggest 10 fund families, Morningstar reports.
The average active fund had an expense ratio of 0.75% in 2016, while this figure was only 0.17% for passive funds, the research firm says.
Passive funds added $563 billion in assets last year vs. $325.6 billion for active products. Industry research has found that fewer than 1 in 5 active managers beat the basic market index their funds aim to outperform.