More interest in ETFs, low-cost funds but Singapore still lacks pressure to further lower fund fees

[SINGAPORE] An incentive for higher commissions among fund distributors in Singapore is hindering a decline in funds fees, even amid rising demand for lower-cost products such as exchange-traded funds.

While fees globally are coming down as investors seek cheaper options, there is not enough pressure in Singapore to move away from products that earn higher commissions, observers said.

“Fee compression is likely going to take longer to materialise in Singapore and the rest of Asia,” said Gregory Van, chief executive of Endowus.

“The shift here will be dependent on competitive pressure, as trailer fees remain a recurring revenue line for many financial advisory businesses, and there are no external forces pushing them to give that up on their own timeline.”

But as investors become more digitally savvy and take greater control of their own finances, observers expect ETFs will continue gaining ground, with fees being more important for areas where managers can add value.

Global fee compression for funds

Arvind Subramanian, senior analyst, manager research at Morningstar, noted fund fees are compressing globally as asset managers of greater scale can pass on lower fees.

Investors are also seeking lower cost products, especially in areas with lower alpha opportunities, or investments that can generate return beyond a standard market benchmark.

But in Singapore, financial products are still more sold than bought, said Christopher Tan, founder and chief executive of Providend.

“While investment literacy has improved over the years, most investors are still adviser-led and not (the) do-it-yourself (DIY) type and they are seldom sold low-cost funds for obvious reasons,” Tan said.

These products are being distributed primarily by intermediaries such as banks, investment platforms and financial advisers – many of which are insurance-based and tend to distribute investment-linked insurance policies, Tan added.

Distributors in Singapore are also incentivised to sell funds with higher commissions, observers said.

Most funds are still sold with trailer commissions, which is a recurring commission fund managers pay distributors whenever their funds are sold, said Endowus’ Van.

He said: “Most fund fees remain high to pay for trailer commissions so their funds get more attention from distributors, which is clearly not systematically aligned to the client, who ends up paying more in fees, and being recommended products that may not be chosen on merit or suitability.”

For the banks, unit trusts dominate due to historical reasons and profitability, said Jeremy Foo, StashAway Singapore country manager.

Unit trusts have been distributed through banks and financial advisers for decades, and are deeply embedded in the traditional advisory model, he said.

Banks also typically earn an upfront sales charge of 1.5 to 5 per cent, plus an ongoing trailer fee worth 20 to 60 per cent of the fund’s annual management fee. In comparison, platforms typically earn a commission on the trade of an index ETF, with no additional upfront or ongoing fees, he added.

Demand for lower cost

But this trend is gradually shifting – the search for cost-efficient options has resulted in more money flowing into low-cost ETFs, said Foo.

ETF assets on the Singapore Exchange passed S$20.5 billion in June this year, up from S$18 billion in 2025, while ETF holdings in Central Provident Fund Supplementary Retirement Scheme accounts grew 380 per cent between December 2019 and October 2025, Foo noted.

“The pressure is clearest in asset categories where low-cost alternatives are widely available,” Foo said, citing US equities as an example.

The S&P 500 has historically returned around 9 per cent a year, and investors can track it through ETFs costing as little as 0.03 per cent, he said.

Digital wealth platforms have also raised the popularity of such products by increasing access, said Jeyson Ng, chief executive of Moomoo Singapore.

Traditionally, relationship managers played a central role in recommending and distributing investment products, with intermediaries receiving a share of those fees.

Now, investors can access funds directly and make decisions using market data, research and analytical tools, reducing their reliance on traditional intermediaries.

“This disintermediation has made costs more transparent and put pressure on sales charges and other distribution-related fees,” Ng said.

Going forward, ETFs will likely continue to gain ground, Foo said. “They’re one of the best and most cost-effective ways to invest, and more investors are recognising that.”

Younger, digital-native investors are also pushing for lower fees further, questioning sales-led distribution and actively seeking transparent, unbundled pricing, said Ritesh Ganeriwal, managing director and head of investment advisory at Syfe.

“As more assets move to a younger generation, that scrutiny will only sharpen,” said Ganeriwal.

Change will take time

While there is strong demand for low-cost options, it will take some time for funds fees to decline further.

It will “be awhile” before the banks in Singapore operate on a fee-only model like those seen in the US, Europe and Australia, which only charge a fee for advice and do not receive all forms of commissions, Providend’s Tan said.

Converting into a fee model will see the banks move from a sales organisation to a professional service firm, and require senior executives to think longer term, he said.

“This is difficult for senior executives who need to answer to their public shareholders who are always looking at short-term share prices movements,” he said.

Furthermore, to operate as a fee-for-service firm, financial institutions will need to hire professional and more technically inclined advisers rather than sales people, which are not as readily available in Singapore, he added.

A large majority of financial advisers are self-employed commission-taking advisers, Tan noted.

Foo said banks have little reason to move away from a model that is still working well for them.

High-net-worth clients in Asia are also used to getting advice as part of a broader banking relationship, rather than paying separately for access to an adviser, he said.

Observers say it is unlikely that the market will be determined by price alone.

Ganeriwal said: “If you have the time and the know-how, DIY investing is entirely viable. The challenge lies in the time and expertise.”

Investors may accept higher fees where a product provides differentiated exposure, active management or a specific outcome that cannot be replicated easily through a low-cost index product, said MooMoo’s Ng.

Going forward, Ng expects retail portfolios to combine different types of products, with low-cost passive ETFs used increasingly as core holdings, complemented by actively managed, income-oriented or market-specific strategies where investors see a differentiated proposition.

“The discussion should go beyond who offers the lowest headline fee,” Ng said. “As fees become more competitive, differentiation will increasingly come from product access, technology, data, education and the quality of the overall customer experience.”