Fee compression: active management is not dying

September 15, 2026 · 5 min · Free, with full transcript

Passive flows into index funds and ETFs have dominated the last decade, and most people read that as the end of active management. The position here is different: the market did not kill a category, it killed a price point. What died was the commodity middle, large cap US equity charging 80 basis points for benchmark hugging, while scarcity based strategies like private credit, emerging market debt and small caps kept growing fee related earnings at firms such as Apollo and Ares. You leave with a sorting test for every product line, access or outcome, a warning about crowding into private credit as fees drift from 1.5% toward 1%, and the Morgan Stanley case for owning the relationship through Eaton Vance and E-Trade.

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4 min

Chapters

Key takeaways

  • Sort every product line into access or outcome: access fees are sticky, outcome fees are a dead man walking.
  • Stop defending product margins in the commodity middle, large cap US equity at 80 basis points, and harvest them for cash instead.
  • Do not chase private credit as last year's winner; management fees are already drifting from 1.5% toward 1% on larger vehicles.
  • Avoid gutting fundamental research desks to fund a passive push, as the manager that cut a third of its team in 2023 had nothing to sell when volatility returned in 2025.
  • Treat beta as heading to zero and invest in advice, allocation and client relationships where the margin reassembles.
Read the full transcript

Host:Welcome to the Leaders' Insights podcast. Today's episode, fee compression and the flight to passive, why the death of active management is overstated. Everyone's been writing active management's obituary for a decade. You're telling me it's premature. Convince me because the flows say otherwise.

Expert:The flows say people stopped overpaying for closet index funds, funds that charge active fees while quietly hugging the benchmark. That's not the death of active. That's the death of fraud dressed as active.

Host:Nice line, but net flows into passive vehicles, index funds and ETFs have been brutal. BlackRock and Vanguard have vacuumed up trillions. That's not a rounding error.

Expert:No, it's a repricing. Here's the durable principle every good operator already internalized. The market doesn't kill a category. It kills a price point. Active didn't lose because it was active. It lost the commodity middle. Large cap U.S. equity where nobody has an edge and everyone charges 80 basis points, meaning 0.8% a year for it.

Host:So where does active actually survive? Where information is scarce and hard to replicate

Expert:cheaply, private credit, lending directly to companies outside the banks, emerging market debt, small caps that no index tracks well, anything an algorithm can't strip mine. Look at Apollo and Aries. Their fee related earnings grew double digits through the whole passive is winning narrative because they sold scarcity, not beta.

Host:Beta being the return you get just for showing up to the market. Fine. But a CFO at a traditional shop hears that and thinks, great, I'll pivot to private credit. Isn't that the cliche everyone's chasing now?

Expert:It is. And that's the trap. When everyone crowds the escape hatch, the escape hatch gets priced like the room they're fleeing. Private credit fees are already compressing. I've seen management fees drift from 1.5% toward 1% on the bigger vehicles. If you allocate capital based on last year's winner, you buy the peak.

Host:So what's the actual mistake CFOs make? Be specific.

Expert:They confuse a secular trend, a permanent structural shift with a cyclical one, and they do it in both directions. In 2016, they under invested in ETFs because it's a fad. Now in 2026, they're over investing in whatever's hot and gutting their active desks entirely. Same error, opposite sign, both destroy capital.

Host:Give me a concrete example of getting it wrong.

Expert:Take a mid-sized traditional manager. I won't name them, but this pattern repeats. They cut their fundamental research team by a third in 2023 to fund a passive push. Then in 2025, volatility returned, active outperformed, and they had no product to sell into the demand. They'd amputated the limb right before the race. That's a CFO reading the headline instead of the durability of the demand.

Host:How do you tell durable demand from a headline though? That's easy to say after the fact.

Expert:You ask one question. Is the client paying for access or for outcome? If they're paying for access to a market they couldn't reach alone, that fee is sticky. If they're paying for outperformance, you can't reliably deliver. That fee is a dead man walking. Test every product line against that. Most CFOs have never actually run the exercise.

Host:And the fee compression itself, is there a floor or does this go to zero?

Expert:Beta goes to zero. Some ETFs already charge three basis points, essentially free, because they're loss leaders to capture the client. But the moment everything's free, the value migrates to advice and allocation, deciding what to own, not manufacturing it. That's where the margin reassembles. Morgan Stanley figured this out, buying Eaton Vance and E-Trade, own the relationship, and the product margin matters less.

Host:So the fun factory becomes a commodity and the advice becomes the business.

Expert:Right, and that's the lesson that predates this whole cycle. Whenever manufacturing gets commoditized, money moves to distribution and curation. Happened in music, in retail, now in asset management. The CFOs who saw it early stopped defending product margins they were going to lose anyway and invested in the relationship instead.

Host:Give me the one thing a CFO should do Monday morning.

Expert:Take every product line and sort it into two buckets, access or outcome. Fund the access, harvest the outcome for cash while it lasts, and stop pretending the commodity middle is coming back. It isn't.

Host:Sources for today's episode. Financial Times' Accounting Today CFO Dive. That's it. The CFO decision tools are live at MBA-training.com.

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