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Expense ratios have become more and more competitive, creating opportunities while putting pressure on fund managers. With more than 3,000 exchange-traded funds (ETFs) on the market, investors are gravitating toward those with lower expense ratios — making low-cost operations a necessity.
There are unavoidable admin fees and operational expenses associated with every fund, but streamlining your ETF index maintenance costs can give you an edge. Lowering maintenance costs also lowers your fund’s expense ratios, which means investors are far more likely to invest in your product.
Here’s how ongoing maintenance costs impact your ETF expense ratio, with tips for the best ways to minimize these recurring expenses.
Savvy investors know that every ETF expense ratio comes directly out of their returns. Over time, those seemingly small percentages can add up and devour your ETF’s performance.
When investors compare two similarly performing funds covering the same market exposures, the choice becomes mathematical: why give up 0.50% of your returns when you could give up just 0.25%? Unless that higher-cost fund offers something exceptional in track record or differentiation, the lower expense ratio wins every time.
This puts pressure on fund managers to keep their net expense ratio as competitive as possible. ETF expense ratios have been steadily declining, with 2024 averages hitting 0.14% for index equity ETFs and 0.10% for index bond ETFs. Low expense ratios are part of what’s driving ETFs toward dominance, especially when compared to equity mutual funds, which averaged 0.40% in 2024.
Issuers who want the lowest possible ETF expense ratio should consider the annual fees for the following maintenance expenses:
The right index determines what investors will benchmark your performance against and shapes the entire investment experience for any index fund or ETF. When launching new funds, issuers need responsive index partners who can translate their market vision into a trackable benchmark.
Even if your ETF is already live, it’s worth it to periodically review your options. A licensing fee difference between 0.03% and 0.04% might seem trivial for a $10 million fund, at just $3,000 versus $4,000 annually. But scale that same ETF to $10 billion in assets, and suddenly you’re choosing between paying $30 million or $40 million. That $10 million difference can make or break the competitiveness of your ETF.
Over time, funds must rebalance in order to maintain their strategy. Every fund has a deliberate strategy behind its asset allocation and risk profile.
Some investments might outperform others, or new opportunities may arise. Rebalancing a fund to make strategic adjustments and maintain that vision comes at a cost.
Every investment needs safekeeping. A fund’s assets require a custodian to hold them, which comes with fees. ETFs that hold foreign securities or use investment strategies centered on complex financial instruments are more challenging for custodians to manage and can carry higher fees.
Every ETF comes with administrative and legal fees, which cover everything from regulatory compliance and SEC filings to board oversight and audit costs. Keeping these fees low can help issuers keep their expense ratios grounded.
Legal costs can swing up or down with regulatory changes and documentation updates, so keep a close eye on them. While they might look like fixed overhead, fund managers can find ways to cut expenses without cutting corners, making their ETF operations more cost efficient.
Related: 7 tips for cost-efficient ETF operations
As discussed, licensing an index for a new fund that hasn’t built significant AUM typically costs 0.03-0.04%. Specialty indices command higher fees, but even these specialized options rarely exceed 0.10%.
Self-indexing offers one way to avoid licensing fees, but it comes with its own costs and time requirements. For many issuers, self-indexing can actually be more expensive than licensing an index from a provider.
Different index types carry a variety of associated costs:
All index types have unique needs that can impact licensing costs. Here are some questions to consider:
What is the methodology, and will it have an impact on costs, fees, or overhead?
If an issuer creates their own bespoke index, they may end up dividing their time and energy between managing the index and the product, further underscoring the value of a good index partner.
“The relationship between asset manager and index providers is crucial to the success of an ETF,” said TMX VettaFi’s Cinthia Murphy. “As the product provider, what you want is not just a vendor who’s behind a benchmark development and calculation, but a true partner who’s committed to the growth of the product, fighting in the trenches with you. VettaFi is unique from that perspective because the business model is built on partnerships. From index creation and calculation to ETF product marketing and distribution, VettaFi is a partner committed to each index ETF’s ultimate success.”
Another common ETF cost comes from rebalancing. When an index adds or removes companies, ETFs tracking that index must adjust their holdings to stay aligned. This process creates tracking differences, the gap between an ETF's performance and its underlying index.
Tracking differences are normal and expected. ETFs typically trail their benchmark slightly, though not always. Tracking error is a related but different metric that measures variability rather than performance. It’s calculated using the daily return differences between the fund’s total return and the underlying index.
Each rebalancing requires buying and selling securities, which generates transaction costs. Some ETF types face higher rebalancing frequency: equal-weight products, for example, must rebalance regularly to maintain their target allocations. These frequent transactions can increase costs and tracking differences.
While tracking differences and tracking errors are normal, consider how often your product will need rebalancing and what trading costs those transactions will generate.
Administrative and legal costs represent a significant part of any ETF’s expense structure, starting with registration fees that depend on several factors.
At minimum, expect to pay $50,000 for initial registration, but it’s usually much higher. Beyond that, fund managers are usually on the hook for around $200,000 to $250,000 in annual admin and legal expenses. Some ETFs cost even more to register and maintain.
Operational expenses include those associated with the following annual expenses:
These fees add up. Since growing your assets under management (AUM) takes time, ETFs benefit from substantial seed funding to create a long runway and a better chance of success.
Every fund needs a place to house its assets, and financial institutions charge custodial fees for this safekeeping service. These fees vary significantly based on the types of assets the fund holds, with costs typically assessed against the fund’s average assets or total assets.
Foreign securities carry additional fees that domestic assets don’t face. The more specialized or complex the asset class, the higher the custodial costs typically become. As these fund fees compound, understanding the full expense structure is essential when preparing to launch a product.
However, administrative strategies can help control custodial fees. Consolidating accounts and leveraging prime brokerage relationships can reduce some of these costs.
Read about: Best practices for launching an ETF
Beyond core maintenance, ETFs have other operational expenses that impact the overall expense ratio: marketing and listing costs.
Every ETF needs a smart, full-funnel marketing strategy to bring in flows, but it can increase operational costs that impact the ETF expense ratio.
A small, unknown fund will struggle to attract flows compared to a larger fund with brand recognition. Always consider your marketing and distribution budget from the start. The right index partnerships can help you keep some of your marketing expenses down.
Ultimately, your goal should be to find the right balance: spend too little on marketing, and the ETF may never gain enough momentum before its seed funding runs out. Spend too much, and the higher expense ratio could make the fund less competitive with investors.
For a fund to succeed, investors need to know it exists. VettaFi has a soup-to-nuts approach to index partnership, helping asset managers build products and then supporting them throughout the product life cycle.
You might like: 7 ETF marketing tactics to attract investors
For a product to be traded, it must be listed on an exchange. Making that happen comes with its own set of costs. Exchanges charge listing and maintenance fees for every product that trades on their platform, and those fees can vary depending on a variety of factors.
Some exchanges offer better rates for larger funds or high-volume trading, while others give discounts when you list several ETFs with them. Some newer exchanges also compete by offering lower fees, so be sure to compare options and negotiate terms that make sense for your fund’s size and growth plans.
For the NYSE Arca, issuers won’t have to pay a fee for “generic” ETFs. Non-generic strategies (such as commodity-based trusts) could see fees of roughly $10,000. Actively managed ETFs will face a slightly higher fee than passively managed funds.
Additionally, listing maintenance costs can range from $5,000 to $40,000, depending on whether a fund is active or passive. The number of issued shares matters, too, with more shares held by investors driving a higher fee.
When thinking about listing fees, remember that:
Issuers need low ETF expense ratios to compete for investor attention, which means focusing first on core maintenance costs:
When you have an index partner who can ease the day-to-day management of your fund, it will go a long way toward keeping your costs low or differentiating your product enough to warrant the higher expense ratio. VettaFi helps issuers build and grow products. Talk to our experts when you put together your next product.
Expense ratios have become more and more competitive, creating opportunities while putting pressure on fund managers. With more than 3,000 exchange-traded funds (ETFs) on the market, investors are gravitating toward those with lower expense ratios — making low-cost operations a necessity.
There are unavoidable admin fees and operational expenses associated with every fund, but streamlining your ETF index maintenance costs can give you an edge. Lowering maintenance costs also lowers your fund’s expense ratios, which means investors are far more likely to invest in your product.
Here’s how ongoing maintenance costs impact your ETF expense ratio, with tips for the best ways to minimize these recurring expenses.
Savvy investors know that every ETF expense ratio comes directly out of their returns. Over time, those seemingly small percentages can add up and devour your ETF’s performance.
When investors compare two similarly performing funds covering the same market exposures, the choice becomes mathematical: why give up 0.50% of your returns when you could give up just 0.25%? Unless that higher-cost fund offers something exceptional in track record or differentiation, the lower expense ratio wins every time.
This puts pressure on fund managers to keep their net expense ratio as competitive as possible. ETF expense ratios have been steadily declining, with 2024 averages hitting 0.14% for index equity ETFs and 0.10% for index bond ETFs. Low expense ratios are part of what’s driving ETFs toward dominance, especially when compared to equity mutual funds, which averaged 0.40% in 2024.
Issuers who want the lowest possible ETF expense ratio should consider the annual fees for the following maintenance expenses:
The right index determines what investors will benchmark your performance against and shapes the entire investment experience for any index fund or ETF. When launching new funds, issuers need responsive index partners who can translate their market vision into a trackable benchmark.
Even if your ETF is already live, it’s worth it to periodically review your options. A licensing fee difference between 0.03% and 0.04% might seem trivial for a $10 million fund, at just $3,000 versus $4,000 annually. But scale that same ETF to $10 billion in assets, and suddenly you’re choosing between paying $30 million or $40 million. That $10 million difference can make or break the competitiveness of your ETF.
Over time, funds must rebalance in order to maintain their strategy. Every fund has a deliberate strategy behind its asset allocation and risk profile.
Some investments might outperform others, or new opportunities may arise. Rebalancing a fund to make strategic adjustments and maintain that vision comes at a cost.
Every investment needs safekeeping. A fund’s assets require a custodian to hold them, which comes with fees. ETFs that hold foreign securities or use investment strategies centered on complex financial instruments are more challenging for custodians to manage and can carry higher fees.
Every ETF comes with administrative and legal fees, which cover everything from regulatory compliance and SEC filings to board oversight and audit costs. Keeping these fees low can help issuers keep their expense ratios grounded.
Legal costs can swing up or down with regulatory changes and documentation updates, so keep a close eye on them. While they might look like fixed overhead, fund managers can find ways to cut expenses without cutting corners, making their ETF operations more cost efficient.
Related: 7 tips for cost-efficient ETF operations
As discussed, licensing an index for a new fund that hasn’t built significant AUM typically costs 0.03-0.04%. Specialty indices command higher fees, but even these specialized options rarely exceed 0.10%.
Self-indexing offers one way to avoid licensing fees, but it comes with its own costs and time requirements. For many issuers, self-indexing can actually be more expensive than licensing an index from a provider.
Different index types carry a variety of associated costs:
All index types have unique needs that can impact licensing costs. Here are some questions to consider:
What is the methodology, and will it have an impact on costs, fees, or overhead?
If an issuer creates their own bespoke index, they may end up dividing their time and energy between managing the index and the product, further underscoring the value of a good index partner.
“The relationship between asset manager and index providers is crucial to the success of an ETF,” said TMX VettaFi’s Cinthia Murphy. “As the product provider, what you want is not just a vendor who’s behind a benchmark development and calculation, but a true partner who’s committed to the growth of the product, fighting in the trenches with you. VettaFi is unique from that perspective because the business model is built on partnerships. From index creation and calculation to ETF product marketing and distribution, VettaFi is a partner committed to each index ETF’s ultimate success.”
Another common ETF cost comes from rebalancing. When an index adds or removes companies, ETFs tracking that index must adjust their holdings to stay aligned. This process creates tracking differences, the gap between an ETF's performance and its underlying index.
Tracking differences are normal and expected. ETFs typically trail their benchmark slightly, though not always. Tracking error is a related but different metric that measures variability rather than performance. It’s calculated using the daily return differences between the fund’s total return and the underlying index.
Each rebalancing requires buying and selling securities, which generates transaction costs. Some ETF types face higher rebalancing frequency: equal-weight products, for example, must rebalance regularly to maintain their target allocations. These frequent transactions can increase costs and tracking differences.
While tracking differences and tracking errors are normal, consider how often your product will need rebalancing and what trading costs those transactions will generate.
Administrative and legal costs represent a significant part of any ETF’s expense structure, starting with registration fees that depend on several factors.
At minimum, expect to pay $50,000 for initial registration, but it’s usually much higher. Beyond that, fund managers are usually on the hook for around $200,000 to $250,000 in annual admin and legal expenses. Some ETFs cost even more to register and maintain.
Operational expenses include those associated with the following annual expenses:
These fees add up. Since growing your assets under management (AUM) takes time, ETFs benefit from substantial seed funding to create a long runway and a better chance of success.
Every fund needs a place to house its assets, and financial institutions charge custodial fees for this safekeeping service. These fees vary significantly based on the types of assets the fund holds, with costs typically assessed against the fund’s average assets or total assets.
Foreign securities carry additional fees that domestic assets don’t face. The more specialized or complex the asset class, the higher the custodial costs typically become. As these fund fees compound, understanding the full expense structure is essential when preparing to launch a product.
However, administrative strategies can help control custodial fees. Consolidating accounts and leveraging prime brokerage relationships can reduce some of these costs.
Read about: Best practices for launching an ETF
Beyond core maintenance, ETFs have other operational expenses that impact the overall expense ratio: marketing and listing costs.
Every ETF needs a smart, full-funnel marketing strategy to bring in flows, but it can increase operational costs that impact the ETF expense ratio.
A small, unknown fund will struggle to attract flows compared to a larger fund with brand recognition. Always consider your marketing and distribution budget from the start. The right index partnerships can help you keep some of your marketing expenses down.
Ultimately, your goal should be to find the right balance: spend too little on marketing, and the ETF may never gain enough momentum before its seed funding runs out. Spend too much, and the higher expense ratio could make the fund less competitive with investors.
For a fund to succeed, investors need to know it exists. VettaFi has a soup-to-nuts approach to index partnership, helping asset managers build products and then supporting them throughout the product life cycle.
You might like: 7 ETF marketing tactics to attract investors
For a product to be traded, it must be listed on an exchange. Making that happen comes with its own set of costs. Exchanges charge listing and maintenance fees for every product that trades on their platform, and those fees can vary depending on a variety of factors.
Some exchanges offer better rates for larger funds or high-volume trading, while others give discounts when you list several ETFs with them. Some newer exchanges also compete by offering lower fees, so be sure to compare options and negotiate terms that make sense for your fund’s size and growth plans.
For the NYSE Arca, issuers won’t have to pay a fee for “generic” ETFs. Non-generic strategies (such as commodity-based trusts) could see fees of roughly $10,000. Actively managed ETFs will face a slightly higher fee than passively managed funds.
Additionally, listing maintenance costs can range from $5,000 to $40,000, depending on whether a fund is active or passive. The number of issued shares matters, too, with more shares held by investors driving a higher fee.
When thinking about listing fees, remember that:
Issuers need low ETF expense ratios to compete for investor attention, which means focusing first on core maintenance costs:
When you have an index partner who can ease the day-to-day management of your fund, it will go a long way toward keeping your costs low or differentiating your product enough to warrant the higher expense ratio. VettaFi helps issuers build and grow products. Talk to our experts when you put together your next product.
