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Fee Battle Heats Up as Fidelity Launches Zero-Cost Index Funds

The asset manager announced a series of changes to its retail investing program on Wednesday, including what it says are the first-ever fee-free index funds.

For some investors, zero-fee investments are about to be a reality: Fidelity Investments has announced a series of changes to its funds, including the launch of two fee-free index funds. 

The $7 trillion asset management giant has announced that it will offer investment accounts for retail investors that require no minimums to open, in addition to removing account fees and ensuring that any domestic money movements are fee-free.

“We are charting a new course in index investing that benefits investors of all ages — from millennials to baby boomers — and at all affluence levels and stages of their lives,” said Kathleen Murphy, president of Fidelity’s personal investment business, in a statement. 

Fidelity says it is the first to offer zero expense ratio self-indexed funds to consumers. The move is significant as passive-fund providers race to cut costs and capture market share of retail investors.

“Fidelity will provide investors the lowest priced share class available, ensuring every investor, regardless of how much they invest, will benefit from the lowest possible fees,” according to the firm’s announcement. 

[II Deep Dive: Fidelity International Will Charge Fees Tied to Performance]

Fidelity’s two fee-free index funds are set to be available to individual investors on August 3, a spokesperson said via email. The Fidelity ZERO Total Market Index Fund seeks to track the total U.S. stock market, while the Fidelity ZERO International Index Fund will act as its international counterpart. 

In addition to these changes and the launch of fee-free funds, the company has reduced fees for several other index funds. The average asset-weighted yearly expense across the index funds will decrease by 35 percent, according to Fidelity’s announcement.

“We have both simplified and provided greater value to individual investors by reducing the expenses to the lowest cost share class available for 21 different stock and bond index mutual funds,” a spokesperson said via email. “The reduced fund expenses are available today, regardless of what option an investor selects, and the share class consolidation will occur in early November.”

This is just one of a few moves Fidelity has made to lower fees for customers. In October 2017, the asset manager’s U.K.-based office, Fidelity International, announced that it would start offering variable fees for actively managed funds, reducing its management fees and linking them to performance.

The company also began offering zero expense ratio accounts to retail investors in 2017, known as Fidelity FLEX funds. These accounts were not completely fee-free, though. Fund prospectuses show that shares of the FLEX funds can only be purchased through certain fee-based accounts offered by Fidelity.

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