As Vanguard closes in on top TDF provider Fidelity, the Boston fund company is taking steps to bolster its shrinking advantage, lowering fees on their Freedom Index Funds. Fidelity’s new pricing will be 16 BPs, undercutting Vanguard’s TDF fees, which currently average 18 BPs. Fidelity’s TDFs using actively managed funds average 69 BPs.
Since 2008, Vanguard’s TDFs have grown by 383%, rising to $148 billion and securing the #2 market position behind Fidelity’s $175 billion and 160% growth rate. A recent Aon Hewitt study showed that significantly more large DC plans made efforts to reduce fund costs in the last two years, with 50% of them moving to lower-cost funds.
In an unrelated move, Fidelity’s brokerage division raised pricing for purchasing funds that do not pay shareholder fees — like Vanguard, DFA and Dodge & Cox — while lowering fees for most other funds. The difference is now dramatic: The cost for advisors to buy most funds on Fidelity’s retail and institutional platform will be $30 per trade, down from $40 charged by $50 for Vanguard and others. Interestingly, the cost to sell all funds will be reduced to $30 for all funds, including Vanguard.
