Fidelity is taking dead aim at Vanguard on fund fees with a new line-up of investor-friendly fees.
On July 31, the Boston-based mutual fund giant rolled out a set of lower fees on 14 of its flagship funds. In doing so, Fidelity (with $6.2 trillion in assets under management) claimed that 100 percent of its stock and bond index mutual funds and sector ETFs will have total net expenses lower than their comparable Vanguard fund (Vanguard has $4.4 trillion in assets under management.)
“For index investors focused on cost, there’s no need to look further than Fidelity,” said Colby Penzone, senior vice president for Fidelity’s Investment Product Group. “Already one of the industry’s lowest cost index fund providers, we now offer an even better value. We believe we have an index value proposition unsurpassed in our industry.”
Fidelity offers an award-winning online brokerage platform, mobile applications, more than 190 Investor Centers in the U.S., and other perks, he added.
According to a statement from the company, the average expenses across Fidelity’s stock and bond index fund line-up will decrease to 9.9 basis points (or 0.099%), down from 11.0 basis points. The expense reductions are expected to save current shareholders approximately $18 million in fund fees annually, the company stated.
Fees Going Down, Down, Down
The fund fee cuts, which took effect Aug. 1, slashes total expenses on 14 of Fidelity’s 20 mutual funds. For example, fees on the Fidelity (Premium Class) 500 Index Fund (FUSVX) slid from 0.045 to 0.035.
Fidelity’s (Investor Class) Large-Cap Growth Index Fund (FSUPX) is taking a bigger haircut, with fees falling from 0.210 to 0.170, while the Fidelity Investor Large Cap Value fund will see fund fees fall by the same margin.
Some financial professionals aren’t buying Fidelity’s claim of lower fees compared to Vanguard.
“Maybe,” said Alex Ralicki, a financial planner with Ralicki Wealth Management & Trust Services in Stuart, Fla. “For retail clients, there are many different fees that are charged, between trade costs and internal management fees to front end, back end, and 12b1 fees. In addition, it would depend if the client is working with a broker or investing on their own.”
Others say that Fidelity may be on the right track, fund fee-wise, as Vanguard’s move to eliminate walk-in centers could backfire.
“It’s a good move by Fidelity to level the playing field on fees, because it will bring more clients into their walk-in branches,” said Stanley Teitelbaum, a financial therapist and current Vanguard investor. “Psychologically, it’s more appealing to have the option of a face-to-face contact, which Vanguard no long offers us.”
The move also signals Fidelity’s increasingly aggressive move to attract more financial advisors into the Fidelity fold.
Just prior to the fund fee cuts news, Fidelity announced a new initiative that enable investment advisory companies who use the fund giant’s Clearing & Custody Solutions to have greater access to loans for wealth-management clients through Fidelity’s alliances with U.S. Bank and Goldman Sachs.
That move allowed eligible financial advisory clients to borrow securities-based loans in the $75,000 to $25 million range.
Et Tu, Vanguard?
So far, there’s been no major return volley from Vanguard, which just announced that Tim Buckley, its chief investment officer, will replace Bill McNabb as chief executive officer on Jan. 1, 2018.
In June, the Malvern, Pa.-based fund firm announced its own fund cuts, with 226 of its mutual fund and ETF shares reporting expense ratio decreases. That added up to a projected $337 million in cumulative savings based on total assets.
“Lowering costs can give our clients a better chance for investment success,” McNabb said. “In fact, more than 50 percent of our investment offerings — spanning all product types, asset classes, and management styles — have reported expense ratio reductions over the last six months.
“We continue to look for ways to reduce the cost of investing. At the same time, we are also investing in people and technology to protect our clients’ assets, help improve their fund performance, and serve them more effectively and efficiently with the ultimate goal of improving their outcomes and overall investing experience at Vanguard.”
Expect Vanguard to return fire on the fund fee front, and soon. For a company that built its brand on index funds and low fees, letting Fidelity undercut it on fees is a full frontal attack on Vanguard’s business philosophy.
Perhaps the fund fee wars are just getting started.
Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at firstname.lastname@example.org.
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