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Practice Management > Compensation and Fees

When Account Balances Fall Below The Minimum

By Staff Writer

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May 10, 2004 — When your checking account falls below its minimum balance, your bank may impose a fee to prod you to bring it back up. Mutual fund companies at times do something similar with shareholders who allow their accounts to decline under a specified level.

While some fund companies apply no fees nor penalties, and others waive any such fees subject to various conditions, others assess annual fees on shareholders whose accounts go beneath the fund’s minimum threshold, whether prompted by redemptions, market weakness or fund underperformance.

Fund Advisor surveyed the 20 largest mutual funds to gauge their policies on this subject. Funds that are currently closed to new investors were excluded. Though most of the funds charge an annual fee ranging from $10 to $12 per account, others may close the account if the balance is not brought back up within a certain period of time.

FUND ASSETS MINIMUM INITIAL INVESTMENT (Regular Accounts) IF ACCOUNT FALLS BELOW MINIMUM
Vanguard 500 Index/Inv* (VFINX) $77.7 billion (3/31/2004) $3,000 Imposes a $10 annual fee on accounts falling below $2,500, regardless of whether due to market weakness or redemptions. Fees are waived for shareholders with at least $50,000 in Vanguard accounts
Investment Company of America Fund/A (AIVSX) $60.5 billion (2/27/2004) $250 No fees, no penalties.
Washington Mutual Investors Fund/A (AWSHX $58.1 billion (2/27/2004) $250 No fees, no penalties.
Growth Fund of America/A (AGTHX) $52.0 billion (2/27/2004) $250 No fees, no penalties.
Fidelity Contrafund (FCNTX) $52.0 billion (2/27/2004) $250 No fees, no penalties.
Fidelity Growth & Income (FGRIX) $37.7 billion (3/31/2004) $2,500 Imposes a $12 annual fee on accounts falling below $2,000 due to redemptions or market declines. Fees are waived for shareholders with $30,000 in other Fidelity accounts or during the first year the account is held.
Vanguard Total Stock Market Index/Inv* (VTSMX) $26.5 billion (3/31/2004) $3,000 Imposes a $10 annual fee on accounts falling below $2,500, regardless of whether due to market weakness or redemptions. Fees are waived for shareholders with at least $50,000 in Vanguard accounts
Vanguard Windsor II/Inv* (VWNFX) $24.3 billion (3/31/2004) $3,000 Imposes a $10 annual fee on accounts falling below $2,500, regardless of whether due to market weakness or redemptions. Fees are waived for shareholders with at least $50,000 in Vanguard accounts
Fidelity Equity Income (FEQIX) $24.0 billion (3/31/2004) $2,500 Imposes a $12 annual fee on accounts falling below $2,000 due to redemptions or market declines. Fees are waived for shareholders with $30,000 in other Fidelity accounts or during the first year the account is held.
Fidelity Growth Company (FDGRX) $23.7 billion (3/31/2004) $2,500 Imposes a $12 annual fee on accounts falling below $2,000 due to redemptions or market declines. Fees are waived for shareholders with $30,000 in other Fidelity accounts or during the first year the account is held.
Fidelity Blue Chip Growth (FBGRX) $22.8 billion (3/31/2004) $2,500 Imposes a $12 annual fee on accounts falling below $2,000 due to redemptions or market declines. Fees are waived for shareholders with $30,000 in other Fidelity accounts or during the first year the account is held.
American Century Ultra/Inv (TWCUX) $22.1 billion (3/31/2004) $2,500 Shareholders have 90 days to restore accounts to $2,500 if they fall below that amount due soley to redemptions. Otherwise, accounts are cashed in and closed.
Fundamental Investors Fund/A (ANCFX) $19.9 billion (2/27/2004) $250 No penalties, no fees.
Fidelity Dividend Growth (FDGFX) $18.8 billion (3/31/2004) $2,500 Imposes a $12 annual fee on accounts falling below $2,000 due to redemptions or market declines. Fees are waived for shareholders with $30,000 in other Fidelity accounts or during the first year the account is held.
Janus Fund (JANSX) $16.4 billion (2/27/2004) $2,500 Does not currently impose any fees nor penalties on account balances falling below $2,500. Since 2000, Janus suspended a $10 annual fee on accounts that fell below $2,500 because of redemptions.
Vanguard Windsor/Inv* (VWNDX) $15.1 billion (3/31/2004) $3,000 Imposes a $10 annual fee on accounts falling below $2,500, regardless of whether due to market weakness or redemptions. Fees are waived for shareholders with at least $50,000 in Vanguard accounts.
Putnam Fund for Growth and Income/A (PGRWX) $13.4 billion (3/31/2004) $500 No fees, no penalties.
Lord Abbett Affiliated Fund/A (LAFFX) $13.3 billion (2/27/2004) $250 No fees, no penalties.
T Rowe Price Equity Income Fund (PRFDX) $12.9 billion (2/27/2004) $2,500 Imposes a $10 fee on balances falling below $2,000, unless the decline is due to market weakness. Balances falling below $500 are subject to closure.
Davis New York Venture/A (NYVTX) $12.7 billion (3/31/2004) $1,000 Accounts falling below $500 are subject to closure unless the decline is due to falling market. Davis will send out a letter to shareholders, giving 30 to 60 days to bring the balance back up to $1,000.

*Vanguard funds also carry a class of lower-cost ‘Admiral’ shares that typically require a minimum initial investment of $250,000 or lower, depending on how long an investor has held a particular fund account. Vanguard provides to its high net worth shareholders this break with respect to the servicing of their accounts.

If the Admiral shareholder’s account balance falls below the minimum level because of redemptions, the shares are converted back to the higher-cost “investor” shares. If the account balance declines due to market downturn, Vanguard may not immediately require a conversion to investor shares, although it has the option to do so.

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