A new Morningstar study shows fund expense ratios declined again in 2014 as investors across individual and institutional channels sought low-cost investment products.

The research shows the asset-weighted expense ratio taken across all funds tracked by Morningstar stood at 0.64% at the end of 2014—down slightly from 0.65% in 2013 and significantly lower than 0.76% observed five years ago.

“Investors continue to move away from load-based share classes to those that do not charge loads, which also tend to have lower expense ratios,” the report explains. “Firms that offer lineups with lower asset-weighted expense ratios … have gained market share during the past five years.”

But asset managers aren’t exactly rushing to cut prices: While 63% of fund share classes and exchange-traded products examined by Morningstar reduced their expense ratios during the past five years, just 24% saw fees decrease more than 10%. Meanwhile, Morningstar says, more than one in five (21%) share classes examined actually increased their fees.

All of this takes place against the backdrop of an industry that saw assets under management rise 143% over the past 10 years. Morningstar says this pushed estimated industry fee revenues to an all-time high of $88 billion in 2014, up from $50 billion 10 years ago, while the asset-weighted expense ratio declined 27%.

Examining the Morningstar report closer reveals the lower fee trend “is being driven more by investors seeking low-cost funds than it is by fund companies cutting fees.” Fund investors are buying passive funds at higher rates and are investing in lower-cost options when the decision is made to go with active management approaches.

Morningstar finds strong asset growth, especially among institutional investor channels, has spurred fee reductions by triggering built-in “breakpoints” on management fee schedules. These breakpoints are often preprogrammed into relationships between large asset owners and the investment firms they rely on—such that portfolio growth above predetermined hurdles activates fee reductions.

Still, much of the increased economies of scale are going to fund industry interests rather than to investors, Morningstar says. Stated more directly, assets under management have risen faster than fees have fallen, and this pattern seems likely to continue.

Another interesting line of thinking presented in the report explains why the asset-weighted expense ratio is more informative for industry analysts to consider above a straight average—especially when reviewing a sample that includes a very significant pool of money invested by a select group of major asset owners, from mega retirement plans to university endowments, which tend to negotiate substantially lower prices for investments via their impressive size.

As Morningstar explains, “We emphasize the asset-weighted expense ratio rather than a straight average, as it is more representative of the actual costs borne by investors than a straight average. Equal-weighted averages tend to be skewed by a few outliers—high-cost funds that attract few assets, in this case.” Looking at the Morningstar fund universe, the equal-weighted average expense ratio for all funds in 2014 was far higher than the asset-weighted ratio, at 1.19%.

Importantly, funds with an expense ratio above 1.19% held just 9% of total assets at the end of 2014. This implies, according to Morningstar, that some 91% of investors’ assets were invested in funds with an expense ratio less than or equal to 1.19%.

“Thus, the equal-weighted average expense ratio is a bit of a straw man,” the report concludes. “The asset-weighted expense ratio, which best reflects investors’ collective experience, was 0.64% in 2014.”

Morningstar says mutual funds and exchange-traded funds (ETFs) with expense ratios ranking in the least-expensive quintile of all funds attracted an aggregate $3.03 trillion of estimated net inflows during the past 10 years, “compared with just $160 billion for funds in the remaining four quintiles.”

“That is to say that 95% of all flows have gone into funds in the lowest-cost quintile,” the report notes. “Passive funds (mutual funds and ETPs) have been prominent recipients of the capital flowing into low-cost funds. Compared with funds falling in cost quintiles two through five, funds in the lowest-cost quintile are more likely to be index funds.”

Not surprisingly, the report shows an investor’s decision on the active versus passive question will have a big impact on the fees faced. The asset-weighted expense ratio for passive funds was 0.20% in 2014, the report shows, compared with 0.79% for active funds.

“Estimated net inflows to passive funds in 2014 totaled $392 billion, topping the $66 billion of flows into active funds,” the report continues. “During the past 10 years, passive funds have collected $1.90 trillion in net new investor capital compared with $1.13 trillion for active funds. The difference is even starker among U.S. equity funds. Passive funds focused on U.S. stocks have attracted $671 billion of inflows during the past 10 years, compared with outflows of $731 billion for active U.S. equity funds.”

Morningstar concludes that passive funds “now account for 28% of the total assets in the universe we’ve examined, up from 13% in 2004.”

The full study is available here.