Fidelity Takes on Vanguard With Fee Reductions

Fidelity investments is announcing a 14% price reduction on its target-date funds (TDFs), resulting in most of those funds having lower expense ratios than comparable Vanguard index target-date funds.

Fidelity investments is announcing a 14% price reduction on the entry-level share classes of the Fidelity Freedom Index Funds and the Fidelity Institutional Asset Management Index Target Date Commingled Pools. The fees on all of the investor share classes on these funds are being reduced from 14 basis points to 12 basis points.

Fidelity estimates that the new fees, which became effective June 1, will save investors in the Fidelity Freedom Index Funds $3.2 million a year.

With this action, 21 of the 22 Fidelity Freedom Index Funds will have total net expenses lower than comparable Vanguard index target-date funds, Fidelity says. The investor share class of the Fidelity Freedom Index Fund has the same expenses as its Vanguard counterpart: 12 basis points.

Eric Kaplan, head of target-date product at Fidelity, tells PLANSPONSOR that Fidelity has continued to reduce the fees on these funds since their launch and that growth in assets under management has made it possible to do so. Last year, for example, Fidelity reduced the institutional premium share class fees on these funds from 10 basis points to 8 and the investor share class fees from 15 to 14.

As to why Fidelity decided to make these reductions now, Kaplan says, “Fidelity is continuously looking at the marketplace to ensure our fees are competitive. We are committed to choice and value across our full suite of target date strategies. From a bigger picture standpoint, we have been looking at our fees on all of our strategies, particularly on the index side.”

According to the the most recent 401k Averages book, investment fees continue to decline. All scenarios (expect one) saw a year-over-year decrease in total investment costs of between 0.01% and 0.03%.

Kaplan notes that retirement plans with less than $100 million in assets use the investor share class, with the institutional premium share class available to plans with assets greater than that amount.

As for the objectives of these funds, Finola McGuire Foley, one of the three portfolio managers of these funds, says, “The goal of the target-date strategies is the same for all of our active, index and blend offerings. The goal is to help participants maintain their standard of living throughout their retirement years, so the funds are designed to balance the need for total return during participants’ working years and capital preservation during their retirement years.”