August 24, 2006 07:55 PM
Fidelity Makes Fee Cuts Permanent
Excerpt: Fidelity Investments said it will make permanent sharp cuts in some of its index-fund fees and make any increase subject to shareholder votes.
Fidelity Investments said it will make permanent sharp cuts in some of its index-fund fees and make any increase subject to shareholder votes.
The action ratchets up competition with rival Vanguard Group, which pioneered index funds. When Fidelity's cuts were announced in August, they attracted attention. But Vanguard pointed out that the fee could be raised at any time and others, including investment advisers and a Wall Street Journal columnist, noted that investors lured by the low fees might face big capital-gains taxes if the fees were later raised and they wanted to sell.
Index funds try to match the performance of a benchmark like the Standard & Poor's 500-stock index, rather than selecting individual stocks.
Fidelity, the nation's biggest mutual-fund manager in terms of assets, moved well below its major competitors with the August move, which slashed annual fees on five of its index funds to 0.1% of assets. Fees previously ranged from 0.19% to 0.47% of assets for the funds.
Jeff Carney, president of Fidelity personal investments, said that since the cuts were announced, Fidelity's index funds have brought in $2 billion in new share purchases, exceeding expectations.
He said "the ones we're attracting are extremely good customers" who also buy more-profitable actively managed mutual funds and discount brokerage services. He declined to say when Fidelity expects to make up the revenue lost by the fee cuts.
The Fidelity funds involved include Fidelity Spartan 500 Index Fund, Spartan Total Market Index Fund, Spartan Extended Market Index Fund and Spartan U.S. Equity Index Fund. Fidelity said its VIP Index 500 Portfolio, which hadn't been in the group, also will have a permanent 0.1% annual fee.
In addition, Fidelity said that Spartan International Index Fund, which currently charges an annual fee of 0.1% of assets, will have its fee capped at 0.2%, although it said there aren't any plans to boost the fee. International funds typically have higher fees than U.S. funds.
The biggest index fund, Vanguard 500 Index Fund, charges most investors a fee of 0.18%, which Vanguard said matches its costs. Investors with more than $250,000 are charged 0.09% of assets annually at Vanguard, as are those with more than $50,000 who have been in the fund for 10 years.
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