There’s a slow revolution occurring in the funds management industry that will be a huge benefit for consumers.

And that’s the trend of fund managers slashing their management fees, particularly for retail investors.

As many readers would no doubt know, fund managers charge a percentage of the assets under management – usually around 1%. In some cases, they also charge a performance fee as well, if they outperform their benchmark.

Institutional and corporate clients already receive generous discounts from fund managers, but competition is forcing fees for retail investors lower. That is primarily due to the rising popularity of ultra-low costs exchange traded funds (ETFs) and the inability of most active fund managers to consistently outperform their benchmarks.

There’s also the rising popularity of industry super funds which tend to charge much lower fees than retail fund managers.

Many readers may also know of a number of rising fund managers that charge zero management fees and only charge a performance fee. In other words, they only get paid if their fund beats the market – a scenario something most fund managers simply couldn’t survive.

According to Alex Dunnin, director at research house Rainmaker, funds management is a buyer’s market and fund managers are price takers, not price makers. Mr Dunnin has told Fairfax Media, “Fees are moving down. The broad narrative is that financial services is no different to any other industry. Like the media and taxi industry, it is finding out the hard way that their product is a commodity.

Some ETFs charge as little as 0.05% as a management fee for access to a broad index of stocks such as the S&P 500. That’s 20 times cheaper than the average fee. Intense competition in the ETF market is flowing through to retail fund managers and several are moving to cut their fees.

Japanese fund manager Nikko AM is one of the latest to cut its annual fee from 0.95% to 0.85% on its Nikko AM-Tyndall Australian Share Income Fund. Hunter Hall International Ltd (ASX: HHL) is considering cutting its 1.64% management fee on its flagship Value Growth Trust, despite a compound annual return of 13.7% since inception more than 20 years ago of 13.7%.

That could flow onto other ASX-listed fund managers like Magellan Financial Group Ltd (ASX: MFG) or Platinum Asset Management Limited (ASX: PTM), reducing their revenues over time.

Foolish takeaway

While retail fund managers may be lowering their management fees, the simple fact remains that most investors would be better off investing in index funds (ETFs) or putting their super into low-cost industry super funds, rather than going with a retail fund manager.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.