As the ETF industry witnessed expansive growth during the past decade, providers have been engaging in a fee war as competition heats up. Industry giants like Vanguard and BlackRock have slashed expense ratios to near-zero, but that era of fee compression could be reaching an inflection point. TMX VettaFi caught up with Alex Morris, CEO of F/m Investments, at the Exchange 2026 conference to get his thoughts on the current state of the industry. The discussion focused on active ETFs, rising fees, and dual share classes.
Pay to Play in ETFs
While record flows continue to pour into the cheapest products, the average fee of a new ETF launch is actually rising. Ernst & Young (EY) recently published data showing that active ETFs have seen greater proliferation in the industry, but at a cost—literally. As EY data noted, active ETFs are typically 25 basis points higher so, in effect, the influx of actively managed funds is pushing average fees higher.
“Record flows into the cheapest ETFs in the last three years—S&P, all the Vanguard products—yet despite that, fees are going back up,” Morris explained, noting that along with active ETFs, complex single-stock strategies and derivative-income products are helping to push fees higher. “The average fund coming out today is more expensive than the fund that was two years ago, and it will continue to get more expensive.”
However, as Morris explained, this is “secretly good news” for the industry. New market entrants won’t have to play the low-fee game, which could stifle innovation coming from small, independent firms that simply cannot afford to exist.
“You just can’t afford to run a business at six basis points. Not with independent trustees, TA, accounting, tax, audit… it’s just too expensive,” confirmed Morris.
Morris noted that while mutual funds often settle between the 75–90 basis point range, active ETFs are finding a “sweet spot” in the 40s, 50s, and 60s.
“If you want good quality alpha, you do have to pay something for it,” Morris added. “If it comes for free, then everyone will just get the same plain vanilla, silly product that doesn’t work.”
Dual Share Classes for the Win
F/m Investments launched the first dual share class structure, allowing investors to access its "F/m US TBIL 3-Month Treasury Fund":https://www.fminvest.com/mutual-funds/tbfmx-fm-us-treasury-3-month-bill-fund through either an ETF or mutual fund wrapper within the same portfolio, marking a shift in how advisors can deploy strategies across client accounts.
The Exchange 2026 conference took place just before the launch of Dimensional’s first actively managed ETF share class. However, the buzz on dual share class funds was already circulating throughout the conference.
Morris noted that the structure would inevitably “save the mutual fund.” Firms who have already built a client base from their mutual fund products will allow them to transition to ETFs without triggering a taxable event.
“If you’re in a fund as a taxable investor in a mutual fund and it has short-term capital gains, those probably go away [in an ETF class],” Morris said. “That’s a big win for people.”
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