Fidelity to Implement Surcharge on Vanguard Assets in DC Plans

Fidelity Investments has confirmed that beginning this year, all new 401(k) clients with less than $20 million in assets will be assessed a fee on participant assets held in Vanguard investment funds.

The 5-basis-point fee reportedly will be imposed on plan sponsors. It will not apply to existing clients.

A statement released by Fidelity explains that the fee is intended to make up for administrative services the firm purportedly is not compensated for and that it is not a distribution or revenue sharing fee. The statement reads, in part:

Fidelity requires all fund families to compensate us for the shareholder and administrative services which we provide on their behalf. A small number of fund families have not compensated Fidelity for certain services and this pricing change is designed to address that disparity with the intention of providing fairness across all of our business relationships. 

The statement goes on to say that the firm is “not removing any fund families from our platform, but we are requiring that all fund families compensate us for our services in order to remain in good standing.” 

A Fidelity spokesperson noted that such administrative services include, among others, fund set-ups and closings, transfers, share class conversions, trading cash settlement, pricing and account valuation, dividends and distributions, and various disclosures and reporting.

Moreover, Vanguard’s earlier cut-off requirements regarding plan-level trading activity and large trade notifications has led to excess uncompensated costs, according to the Fidelity spokesperson.

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