European fund managers likely won’t be following some U.S. peers in offering zero-fee funds any time soon, according to new research from Cerulli Associates.

Citing interviews with senior investment professionals at firms including AllianzGI and Aegon Asset Management, Cerulli concluded that few market observers anticipate the products will become commonplace in Europe.

“Zero-fees in Europe will be the exception, rather than the rule,” said André Schurrenberger, Cerulli’s managing director for Europe, in a statement. 

Asset management fee models have experienced — and frequently ceded to — downward pressure over the last few years. But Fidelity Investments’ announcement last year that it would launch two no-fee index funds met with surprise in investing circles, and sparked new conversations about the future of fees.

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In its report, Cerulli said that fees were unlikely to hit zero in Europe, in part because managers would still have to find some way to pay for the fee-less funds, which would still cost money to operate.

“Zero-fee passive products are most viable when the firm in question owns the index being tracked,” Schurrenberger explained. “Otherwise the license fees it needs to pay are likely to require some level of fee to be charged, when means that the range of viable products is limited for this pricing model.”

Even large asset managers, which have the scale to offer such products at a loss, would still face regulatory challenges, Schurrenberger added.

“Regulators will be seeking to ensure that subsidization of zero-fee products by fee-paying investors is either not occurring or is at least fully disclosed,” he said.

Instead, Schnurrenberger said conversations about zero-fee funds are likely to give rise to other innovations in Europe and the U.S., such as charging zero management fees but having a performance-fee mechanism in place.

A business model based on high-fee active funds and zero-fee passive funds, however, is unlikely to be feasible for many managers, according the report. Cerulli reported that fees have been facing downward pressure on both sides of the coin, with 81 percent of active mutual funds charging fees of 1 percent or less in 2017.

The average active fund globally had a management fee of 0.54 percent in 2017, down from 0.58 percent in 2013. Cerulli predicted this fee would slide further to 0.44 percent by 2025.

For passive funds, the average management charge was 0.15 percent in 2017, compared to 0.19 percent in 2013.