Like the Hundred Years’ War between England and France some six centuries ago, the fee war between fund firm giants Fidelity and Vanguard is more about ongoing skirmishes than a single, conclusive battle. The latest salvo comes from Vanguard.
Changes announced today by the Malvern, Pennsylvania-based fund behemoth will save money for investors via two steps. First, Vanguard lowered the investment minimum for its Admiral share class index mutual funds – about 38 portfolios – from $10,000 to $3,000. As part of the move, investors holding the Investor share class, which required a $3,000 minimum to buy shares for the first time, will be moved into the Admiral share class. New buyers are being directed away from Investor class shares and toward Admiral class shares.
That’s where the savings come in: Admiral share classes cost 15% to 71% less than their Investor class counterparts. Vanguard estimates existing shareholders of its Investor share class index funds – some 1.5 million investors – stand to save about $71 million in annual fees, based on current assets. “Our unique, client-owned structure enables us to consistently pass along economies of scale and lower the cost of investing for our clients,” Vanguard CEO Tim Buckley says.
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The shift includes three of the biggest index funds in the country, measured by assets: Vanguard Total Stock Market Index Fund (VTSAX), Vanguard 500 Index Fund (VFIAX) and Vanguard Total Bond Market Index Fund (VBTLX), which together have some $1.3 trillion combined in total fund assets.
Vanguard also has filed with the SEC to launch Admiral share versions of five other index funds. Vanguard expects those shares to be available in the first quarter of 2019.
Vanguard’s cost cutting comes after what looked like a “game over” move from Fidelity. In an industry first, the Boston-based firm in August 2018 launched two index mutual funds that charge no fee at all. One of them, Fidelity ZERO Total Market Index Fund (FZROX), amassed $1.3 billion in assets in the first three months since it opened. Fidelity launched another two portfolios in September 2018: an index fund for small and mid-size U.S. firms, and a foreign-stock index fund.
Fund firms will no doubt continue to battle it out, but it’s clear who the ultimate winner is in these fee wars – investors.
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