Fidelity Drops Freedom Funds Management Fees

MarketWatch reported the fee reduction Wednesday for the increasingly popular fund style, which automatically manages stock and bond allocations and gradually reduces risk as an investor approaches retirement (See    Retirement Programs: Lifestyle Funds ). Target-date retirement funds have surged in popularity in recent years – in 2004 alone assets jumped 65% to $43.9 billion, according to a study by Lipper (See  Lipper: Lifecycle Funds Explode in Popularity ). Along with lifecycle funds, target-date funds offer have become increasingly prevalent in retirement plans (See  Fidelity: Life Cycle Funds, Automatic Plan Programs Gaining Popularity ).

So far Fidelity has dominated the lifecycle fund arena, with a 33% market share at the end of 2004, according to Lipper. Vanguard Group and T. Rowe Price also have their own fund of funds and the distinction between Fidelity and competitors, such as The Vanguard Group and T. Rowe Price, was that Fidelity tacked on the 8 bps management charge on top of the normal expense rations charged by the component funds in the Freedom fund group, MarketWatch said.

This isn’t the first time Fidelity has slashed fund fees in response to criticism. Earlier this year the asset manager made expense-ratio cuts in several of its index funds permanent after Vanguard chief executive John Brennan called the fee waivers a marketing ploy, MarketWatch reported.

The two archrivals have traded shots over fees, and several other fund companies have reduced expenses in the wake of trading scandals that have shaken investor confidence.

Vanguard, which like Fidelity was untainted and has seen money pile in as a result, recently made it easier for investors to qualify for “Admiral shares” that have lower fees than regular shares.