Sponsors: Prepare to Pay New “Fidelity Fees” on Vanguard Funds

Sponsors: More Fidelity Fees

Sponsors: Prepare to Pay New “Fidelity Fees” on Vanguard Funds. The retirement plan industry is in a dither because Fidelity has said it will charge new 401(k) plan clients with $20 million or less in assets a 0.05% fee on Vanguard funds held in those plans, according to an article from Employee Benefits News. For plan sponsors, the concern is that other recordkeepers will follow in Fidelity’s footsteps and single out other fund managers, which could limit the number of options sponsors are able to offer their retirement plan participants.

According to Fidelity, it is charging these fees for new clients in the small plan market because it is seeking compensation it has not received 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.”

In addition, Fidelity said it has no plans to remove any fund families from its platform, but all fund families must compensate Fidelity to remain in good standing. To be clear: this is an administrative services fee, not a distribution or revenue sharing fee.

So who is paying the price for this? Plan sponsors who hold Vanguard assets will have to pay the fee. The good news is that there are no pass-through fees to participants. However, sponsors will be billed directly for the 0.05% “Fidelity fee” if they hold Vanguard funds in their plans.

There is speculation that the fee may make Vanguard funds less appealing for new Fidelity clients, according to Jim Keenehan, senior consultant for AFS 401(k) Retirement Services, who was interviewed in the EBN article.

From the article: “‘It is no coincidence that Fidelity lowered the fees on its own suite of passive or index funds so I think this change is also going to have an impact of opening the door a bit on the Fidelity platform for Fidelity to win back some of the market share they have been losing so rapidly to Vanguard. Vanguard is just dominating the investment world at this point,’ Keenehan says.” Indeed, Fidelity reduced its fees on stock and bond index mutual funds and sector exchange-traded funds last year.

So is this a competitive land-grab by Fidelity against Vanguard, one of its rivals? Or is it truly a matter of collecting on some fees and leveling the playing field among its partners? And will other recordkeepers follow suit?

Time will tell, but it is an interesting trend worth watching, especially if those fees are going to be absorbed by plan sponsors.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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