4. Competition
Passive funds have a choice of competing indexes to track, but the only real way for them to differentiate is on price. If an asset manager offers the cheapest tracker fund for a popular region or sector it can attract large amounts of money.
The number of active funds available means that active managers have greater competition too. The technological gains mentioned previously have lowered the barriers to entry in asset management.
Amid an increased number of providers, and with so much attention focused on fees, price is one area that can be used as a selling point.
Where you buy your fund matters too
While fund costs are falling, the benefits can be wiped out if you use the wrong broker to trade your funds or shares.
Your choice of “fund shop” is key, as their costs vary. Picking the wrong one could cost you thousands. But selecting the right one is not easy.
The amount you pay depends on your level of assets, the amount you trade and what you are buying. Telegraph Money has a wealth of information on the best fund shop for your Isa or self-invested personal pension (Sipp).
Our figures, compiled by Lang Cat, a consultancy, assume that investors have 80pc of their money in funds and 20pc in shares and that investors make four fund switches and two share trades per year.
The analysis shows that for an individual with £20,000 invested, the cheapest options are Close Brothers, Fidelity Personal Investing or TD Direct Investing, which cost 0.34pc, 0.35pc and 0.36pc a year respectively, on top of the funds’ charges.
The most expensive at this level are the Share Centre at 1.14pc and iWeb at 1.25pc. The difference between the priciest and cheapest is £182 a year.
For someone with £500,000 to invest, the cheapest option is Interactive Investor, which charges just 0.02pc, equivalent to £100 a year. This is also the cheapest platform for those with £100,000 to invest.