Displaying items by tag: fees

(New York)

It was long awaited, but still hit the market like a hammer. It was one of those things that you can prepare for over a long period, yet are inevitably shocked when it arrives. In this case, it was the long-awaited release of a zero fee index fund. Fidelity was the first to do it, and while it was anticipated, the move is likely to have far-reaching effects on the industry. For instance, one of the big changes is that large index funds will likely no longer pay licensing fees to the indexes themselves. At the same time though, indexes will proliferate for more narrow and niche areas designed to track all manner of themes. Fees will likely continue to fall, even on the more complex products.

FINSUM: Asset management is seeing a very serious race to the bottom, which is reflected in share prices lately. Two thoughts come to mind. Firstly, those with huge scale will be the big winners as the industry grows more consolidated. Secondly, how long before retirement funds seeing a reckoning and a big move out of expensive products (they are paying an average of 61 bp in fees)?

New York)

Fidelity made history this week by introducing the first zero fee funds, which will track very broad self-indexed markets. Fidelity’s move is somewhat of a ploy, and definitely a demonstration of scale, as the company has many ways to profit from a customer once it has them in the door. But don’t be fooled, as fees aren’t everything. In fact, there are significant differences in performance even between index trackers of the same benchmark, like the S&P 500, and the differences between them can add up to a whole lot more than the difference in fees. For instance, Schwab and Vanguard already have broad index trackers at 3 and 6 basis points of fees, so hardly a big difference to zero, especially if their performance is better.

FINSUM: “Zero” definitely changes things, but once you are in the sub-15 bp fee category, performance is going to make a bigger difference than fees.

(Boston)

The moment that many asset managers have been dreading has finally arrived. Fidelity announced yesterday that it was slashing prices on many of its funds, and crucially, offering two new index mutual funds with no fees and no minimums. Thus, the Rubicon has finally been crossed—the first broad index funds with zero fees, and no minimums. Many top asset management stocks fell considerably on the news. Remember that asset managers can still make money on funds with zero fees—through stock lending—but they need considerable scale to make that money meaningful.

FINSUM: It was only a matter of time before this happened. We expect Vanguard will follow suit quite soon, as will BlackRock, as lower fees have been by far the biggest selling point in the market for years.

(New York)

The fee war on ETF trading continues, both for advisors and for retail. Trading platforms providers have been engaged in an ongoing struggle to attract assets by slashing the price of trading, and Vanguard just took a big step. While Vanguard used to charge retail investors a flat fee for trades depending on their AUM (trading Vanguard funds was always free), the company is now cutting transaction fees for aboutx 1,800 ETFs on its platform. No more trading fees at all. The move follows Fidelity’s recent addition of more fee-free ETFs. FINSUM: This is a big deal. 1,800 fee-free ETFs dwarfs the competition and we definitely think it will help Vanguard gather more assets, both retail and institutional.

(New York)

Back in late 2016, Merrill Lynch announced that it was abandoning commissions for its brokers. On the back of the shift to the DOL’s fiduciary rule, the firm was forcing clients to either move to fee-based accounts or downgrade to its Merrill Edge discount brokerage. Now, with the DOL rule gone, the firm is considering reversing that decision. Merrill admits that some clients left the firm because the cost of fee-based accounts was more expensive than commissions. Merrill will be considering a change for a 60-day review period.

FINSUM: Having only fee-based accounts always seemed like a bad idea to us because a large subset of customers would see their total fees rise significantly. However, the move fit nicely with the pre-DOL rule environment. Now that things have changed, we suspect the stance might be reversed.