Fidelity has monumentally raised its investment brokerage game. And the changes are so significant that all amateur investors may soon benefit.
I’m excited. 🙂
Here are the big changes that Fidelity just announced:
- Zero minimum investments to open accounts
- Zero account fees (including account closing/transfer)
- Zero domestic money movement fees (i.e. bank wire)
- Zero investment minimums on Fidelity retail and advisor mutual funds and 529 plans
- Significantly reduced and simplified pricing on existing Fidelity index mutual funds
- Zero expense ratio mutual funds (Fidelity ZERO Index Funds)
The first 3 are nice changes that are effective immediately, and fairly self-explanatory. I’m a big fan of investment brokerage pricing simplification, low costs, and an absence of “gotchas”, so I’m excited by these changes.
The final 3, I’ll dig in to in more detail to explain why I think they have the potential to significantly impact not just Fidelity customers, but all amateur investors.
1. Zero investment minimums on Fidelity retail and advisor mutual funds and 529 plans
This is big news because many index and managed mutual funds come with investment minimums that make them inaccessible to many amateur investors. That is partly why I’ve made the shift to ETFs over the years and was very excited to learn of the recent news that the Vanguard commission-free ETF list would be expanding from the 77 that Vanguard manages to nearly 1,800+ from over 100 ETF providers.
This change from Fidelity (in addition to the next two changes) may make their mutual funds worth a serious look, and it will put pressure on other investment brokers to follow suit. For example, Vanguard minimums are currently at $1,000 to $3,000 for “Investor Shares” and $10,000 – 100,000 for “Admiral Shares”. Time to up your game here, Vanguard!
2. Significantly reduced and simplified pricing on existing Fidelity index mutual funds
On this change, Fidelity throws some serious shade at Vanguard and Schwab – their top 2 competitors:
“Fidelity is reducing the pricing on its existing stock and bond index mutual funds. Fidelity will provide investors the lowest priced share class available, ensuring every investor, regardless of how much they invest, will benefit from the lowest possible fees. The average asset-weighted annual expense across Fidelity’s stock and bond index fund lineup’s will decrease by 35 percent, with funds as low as 0.015 percent. These changes will save shareholders approximately $47 million annually. With this action, 100 percent of Fidelity’s stock and bond index mutual funds and sector ETFs will have total net expenses lower than all of Vanguard’s comparable funds that are available to individuals, advisors and institutional investors. In addition, Fidelity beats Schwab’s prices for nine of 10 comparable index mutual funds (and is tied on the 10th index mutual fund).”
Fidelity further compares their new prices and fees to Vanguard and Schwab here, for those who are curious.
This is great news, as I fully expect Vanguard and Schwab to not take this challenge lying down (particularly Vanguard, who has built their entire reputation on having the lowest cost index funds and ETFs). Competition driving down average fees has been a big trend in the investment world in recent years, as these investment brokerage behemoths have been battling it out to claim that they have the lowest investment fees. It started with Vanguard, but Fidelity and Schwab have both followed suit.
Isn’t it nice when industries are actually competitive, for a change? (looking at you, US FTC)
3. Zero expense ratio mutual funds (Fidelity ZERO Index Funds)
I always wondered if we’d get to the point where there would be zero-cost index funds. Props to Fidelity for offering the first (and second).
Fidelity is now offering “total stock” and “international stock” index funds at zero cost and with zero investment minimum. Here is how that compares to Vanguard and Schwab.
Total Stock fund comparison:
|Fund name:||Fidelity ZERO Total Market Index Fund||Vanguard Total Stock Market Index Fund (VTSMX)||Schwab Total Stock Market Index Fund (SWTSX)|
Total International Stock fund comparison:
|Fund names:||Fidelity ZERO International Index Fund||Vanguard FTSE All-World, Ex-U.S. Index Fund (VFWIX)||Schwab International Index Fund (SWISX)|
Again – I don’t see Vanguard and Schwab taking this lying down. It makes sense for large investment brokerages to offer loss-leading no-cost index funds in order to lure in investors. And I can see other investment brokers quickly following suit.
Update (September, 2018): Fidelity has since launched 2 additional zero cost funds:
|Fund name:||Fidelity ZERO Large Cap Index Fund(FNILX)||Vanguard 500 Index Fund(VFINX)||Schwab S&P 500 Index Fund(SWPPX)|
|Fund names:||Fidelity ZERO Extended Market Index Fund(FZIPX)||Vanguard Extended Market Index Fund (VEXMX)||
All-in-all, I’m very excited to see these changes, as I think it could have a ripple effect across the industry. I expect Vanguard’s changes in the ETF space to do the same. When big industry players like Fidelity and Vanguard make sweeping positive changes like this, we all stand to benefit.
I currently do not have an investment account with Fidelity, but if my current brokers do not follow suit, that may be changing fairly quickly.
Also – it’s worth noting that I have received zero compensation from Fidelity for this article – I genuinely am very impressed with the changes that they’ve made and think all amateur investors will benefit from this, whether they have a Fidelity account or not.
Update (Nov, 2018): Fidelity HSA accounts for individual investors are now live. This should change the HSA space for the better.
Update: (June, 2019): Fidelity’s commission-free ETF lineup was expanded to 500+, with 13 providers.
Update: (Oct, 2019): Schwab now offers free stock, ETF, & options trades.