Low-Cost Provider Vanguard Gathers the Most Fee Revenue

Less than a year after Vanguard hired its first outsider CEO, the firm announced its broadest fee cut ever, shaving the expense ratios of nearly 90 open-end mutual and exchange-traded funds and saving investors an expected collective $350 million in 2025 alone. Although most of the reductions amounted to a fraction of a percentage point per fund and a few dollars per investor, they signaled that under former BlackRock executive Salim Ramji, Vanguard was still going to be Vanguard. The low-cost leader was still going to cut costs.

It also showed that the decades-long erosion of asset-management fees is not about to abate.

Virtually every asset manager has felt fee pressure in recent decades. Index fund firms have waged intense price wars, active shops have lost clients and assets to ever-cheaper passive options, shelf space at fund firms' distribution partners has shrunk, and retirement plan participants have challenged the expenses of their plans' lineups.

Despite the pressure, asset-manager fee revenue is not exactly shrinking, as one might suspect.

We recently looked at how fund firms and fund types split the management fee pie and how that has changed over the past seven years. We estimated management fees by calculating each fund’s revenue by multiplying its prospectus management fee and average asset level every quarter and then totaling each year.[1] We rolled annual fund revenue up to the parent firm level and segmented them by whether they were active or passive and by asset class, category, and so on. In cases of mergers or acquisitions, we combined the acquired firm’s offerings and assets with the acquirer’s numbers before the merger. Funds of funds, like most target-date funds, were excluded to avoid double counting.

The management fee figures are imperfect. Using average assets over a quarter, for example, ignores fund accounting practices that accrue management fees more precisely. Fees also could rise or fall in a quarter as assets cross or backtrack over certain breakpoints. So, our figures are estimates only. Still, the analysis offers an informative approximation of fund company revenue trends and market share.

Thank You, Mr. Market

Based on our estimates, trends have not crippled the industry’s fee revenue. Although management fees peaked in 2021, they haven’t fallen far off that mark since and have grown since the beginning of the study period in 2018.

The S&P 500 posted strong gains in 2019, 2020, and 2021, and inflows—particularly to US equity, international-equity, and taxable-bond funds—also swelled in 2021. It was the only year in the past 10 in which active funds, which charge higher fees than passive ones, had net inflows.

A (Slightly) Shifting Stack

As of the end of 2024, Vanguard led all fund families with an estimated 28% of US fund industry assets under management. Vanguard, BlackRock (11%), Fidelity Investments (10%), and Capital Group (8%) managed roughly 57% of industry assets. The management-fee market share picture is similarly concentrated, but the stack is different.

The exhibit below shows the largest 11 firms by management-fee share in 2018 and 2024. We show 11 because two firms—Dimensional and MFS—swapped 10th place between the periods. The largest 11 firms consumed 57% of the industry’s management fees in 2024, a greater percentage than their 52% in 2018.

Although Vanguard has the lowest average management fee among the top 11 firms, as shown in the table below, its hugeness—$8.7 trillion in AUM as of Dec. 31, 2024—enables it to vacuum up the largest share of the industry’s management-fee revenue at 13%. It’s hard to say if Vanguard’s recent fee cuts will affect its management-fee share in the future because other factors, such as fund flows, market performance, and whether rivals respond to Vanguard’s cuts with their own, influence the equation. If Vanguard, however, had made the same cuts in 2024, an up year for the markets and flows, it still would have come out on top with a management-fee share of 12.7%.

Active manager Capital Group came in second, with an 8.62% share of management-fee revenue. The outflows from Capital Group’s open-end mutual funds, known as the American Funds, look heavy in absolute terms but are a smaller percentage of the firm’s large asset base. The firm’s active ETF lineup remains a small slice of the family’s AUM but has grown quickly. Capital Group’s scale has also enabled it to charge some of the lowest management fees among active managers.

Fidelity Investments’ more than $3 trillion in assets under management has helped it to a 7.97% share of fee revenue, but so has its roughly 50/50 mix of active and passive funds, which allows it to benefit from both active fees and passive fund inflows.

BlackRock, the world’s largest asset manager when including other geographies and account types, has an 11% US fund market share by AUM but just 6.79% of the estimated share of management fees because of a heavily passive fund and iShares ETF lineup.

One Clear Winner

Management fee share changes result from fund performance, flows and assets under management, business mix, and pricing trends.

As passive funds have taken share from active ones and investors have sought cheaper options, Vanguard is winning. Its management-fee share increase beats its largest US competitors, growing by nearly 4 percentage points since 2018. For similar reasons, BlackRock/iShares and Fidelity Investments also gained, but by less than 1 percentage point.

A few of the largest firms lost management-fee share. Franklin Templeton and Invesco bought other firms during the period, but their share shrank: Franklin by 1.2 percentage points and Invesco by 1.1 percentage points.

Passive Funds Dominate on Flows and Are Slowly Growing Their Share of Revenue

Passive funds have been taking asset share from active funds since at least 1993, and since 2011, passive inflows have consistently swamped those of active funds. Indeed, in 2023, the majority of industry assets under management went from active to passive.

Passive funds' share of management fees also has been steadily growing since 2018, though it’s still a long way from claiming more than half of estimated revenue. In 2024, it came in at 23%.

Investors Are Driving Change

Public open-end mutual funds and ETFs do not represent asset managers' entire businesses, but examining those that are collecting the most management-fee revenue offers some insight into what is working and what isn’t. So far, firms focused on offering low-cost funds and ETFs are winning, and so are investors.

[1] For years in which fee data was not available, it was assumed that fee levels remained constant from the prior level. However, in instances where there was no prior known value, the next-known fee was used.