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Fidelity Trims Index Fund Fees, Challenging Vanguard

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Fidelity Investments is upping its game in the battle to win over investors who increasingly favor passive funds. The firm will reduce total expenses on 14 of its 20 index mutual funds as of Tuesday, a move it claims will make its stock and bond index funds and sector ETFs cheaper than some of their Vanguard counterparts.

The average expenses on Fidelity’s fund lineup is set to drop by close to 10 basis points (by 9.9 basis points, or 0.099%) from 11 basis points today. The expense drop could save current shareholders up to $18 million annually, the privately held firm says.

According to Vanguard’s website, the Vanguard 500 Index Fund Investor Shares have an expense ratio of 00.14%. The fund’s Admiral Shares, though, have an expense ratio of just 0.04%, as do shares of the Vanguard S&P 500 ETF. 

“For index investors focused on cost, there’s no need to look further than Fidelity. Already one of the industry’s lowest cost index fund providers, we now offer an even better value,” said Colby Penzone, senior vice president for Fidelity’s Investment Product Group, in a statement.

The news comes several days after Fidelity announced plans to offer advisory firms using its Clearing & Custody Solutions more loans for wealth-management clients via partnerships with Goldman Sachs and U.S. Bank. The deal with Goldman Sachs Private Bank Select, for instance, means advisors can offer eligible clients securities-based loans of between $75,000 and $25 million.

The products Fidelity is dropping fees on include the Fidelity 500 Index Fund, Fidelity Total Market Index and Fidelity Extended Market Index Fund.

“We believe we have an index value proposition unsurpassed in our industry,” Penzone explained. “When you combine low expenses with our award-winning online brokerage platform, mobile applications, more than 190 Investor Centers in the U.S., and live 24/7 customer service via phone, we believe Fidelity provides the best customer experience and value in the industry.”

Fidelity will also reduce the eligibility minimum for the Institutional Premium Class of Fidelity 500 Index from $200 million to $100 million.

“As we’ve done for 70 years, we’ll continue to look for opportunities to strengthen our investment products regardless of asset class, style or vehicle. As a diversified financial services provider, we’re focused on helping our customers meet their unique investment needs by providing them access to choice, value and expertise,” stated Penzone.

As of June 30, Fidelity’s assets under administration were $6.2 trillion, including managed assets of $2.3 trillion.

Rival Vanguard says it manages some $4.4 trillion in assets globally. It recently said that its CEO Bill McNabb is retiring at year-end. 

— Check out The Price for Advice Is Changing on ThinkAdvisor.