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In researching ETFs I've found a lot of dire warnings about expense ratios. Evidently, they can really eat up your money.

Ok, so look for funds with low expense ratios.

But, if I understand this correctly, the expense ratio is basically an annual fee (right?).

If you find a fund with a low fee, a few years down the line can the fund managers decide to jack up their fees?

Or is the expense ratio set in stone when you buy the fund?

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In the US, expense ratios are stated in the Prospectus of the fund, which you must acknowledge as having read before the fund will accept your money to invest. You never acknowledged any such thing? Actually you did when you checked the box saying that you accept the Terms of the Agreement when you made the investment.

The expense ratio can be changed by vote of the Board of Directors of the fund but the change must be included in the revised Prospectus of the fund, and current investors must be informed of the change. This can be a direct mailing (or e-mailing) from the mutual fund or an invitation to read the new Prospectus on the fund's website for those who have elected to go paperless. So, yes, the expense ratio can be changed (though not by the manager of the fund, e.g. just because he/she wants a bigger salary or a fancier company car, as you think), and not without notice to investors.

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The expense ratio is stated as an annual figure but is often broken down to be taken out periodically of the fund's assets. In traditional mutual funds, there will be a percent of assets in cash that can be nibbled to cover the expenses of running the fund and most deposits into the fund are done in cash. In an exchange-traded fund, new shares are often created through creation/redemption units which are baskets of securities that make things a bit different. In the case of an ETF, the dividends may be reduced by the expense ratio as the trading price follows the index usually.

Expense ratios can vary as in some cases there may be initial waivers on new funds for a time period to allow them to build an asset base. There is also something to be said for economies of scale that allow a fund to have its expense ratio go down over time as it builds a larger asset base. These would be noted in the prospectus and annual reports of the fund to some degree.

SPDR Annual Report on page 312 for the Russell 3000 ETF notes its expense ratio over the past 5 years being the following:

0.20% 0.20% 0.22% 0.20% 0.21%

Thus, there is an example of some fluctuation if you want a real world example.

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yes , ETFs can increase the expense ratio.

EEM's fees had increased by 2 basis points to 0.69%,

taken from

a question to look for not directly related is Why does the iShares EEM ETF have a higher expense ratio than similar ETFs like VWO?

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