Fidelity Investments: Zero Expense Ratio Index Funds, Zero Account Fees

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Fidelity Investments announced a bunch of “zero”-themed price and fee cuts across nearly all of their products:

  • Zero expense ratio mutual funds (two new Fidelity ZERO Index Funds)
  • Zero account minimums, zero account fees, zero domestic money movement fees
  • Zero investment minimums on Fidelity retail and advisor mutual funds and 529 plans
  • Lower expense ratios on many existing Fidelity index mutual funds

Fidelity ZERO Total Market Index Fund and (FZROX) and Fidelity ZERO International Index Fund (FZILX). These have zero expense ratio. Not nearly zero like 0.03%, but 0.00%. This was made possible partially because Fidelity is “self-indexing” and not paying any licensing fees to a 3rd party provider like the S&P 500.

  • Fidelity ZERO Total Market Index Fund and (FZROX) tracks the total US stock market, and is supposed to be comparable to the Vanguard Total Stock Market Index Fund (VTSMX) and the Schwab Total Stock Market Index Fund (SWTSX).
  • Fidelity ZERO International Index Fund (FZILX) tracks the total international stock market including foreign developed and emerging stocks. It’s supposed to compare with the Vanguard FTSE All- World, Ex-U.S. Index Fund (VFWIX) and Schwab International Index Fund (SWISX). I like that FZILX includes emerging markets. VFWIX does too, but SWISX does not include emerging markets.

More info on Fidelity index funds.


Zero minimums, zero account fees, domestic money movement fees. There is now no minimum amount required to open an account, buy a mutual fund, or maintain any account at Fidelity. Some of the account fees are nice to see gone as I have been dinged by them from other brokerages. For example: account transfer out fee, IRA closure fee, domestic bank wire fee.

Zero investment minimums. If you want to put $5 in a mutual fund, now you can. They want to get rid of all barriers to entry.

Notably, their trade commissions are holding steady at $4.95 a trade. They still have $0 commissions on select iShares and Fidelity ETFs.

Access to lowest-price share class. Although it didn’t fit neatly into their “zero” theme, another big move was that now all investors will get the lowest priced share class available. In the past, if you only put in $5,000 you might pay one price, and if you had $1,000,000 then you’d get a lower price. Vanguard still does this with their Investor and Admiral share classes. Now, everyone will get the lowest price regardless. Fidelity says the average asset-weighted annual expense across Fidelity’s stock and bond index funds will decrease by 35%, with expense ratios as low as 0.015%.

Bottom line. Fidelity just announced a big round of price cuts that basically shout “We’re cheap too!!” They added two new index funds with zero expense ratios, and they got rid of nearly all their account fees and minimum investments. This comes after Vanguard’s “all ETFs trade free with us” announcement and Schwab’s streak of “we have cheap ETFs” TV commercials.



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Comments

  1. A newbie question: I think Fido has a fund which tracks total US market (FSTVX) with a very low expense ratio 0.015%- so what does the logic for a new ‘zero’ Total Market Index Fund?

    • Well, if you’re a skeptic then the zero fund is mostly marketing. You would have to sell your shares in the old “low-cost” fund and buy new shares in the new “zero-cost” fund, possibly incurring capital gains taxes in the process.

      But in Fidelity’s defense, I don’t know how easy it would be to just convert their old fund to the new structure. They probably signed contracts for the index license, etc already and would have to change the prospectus and holdings (a bit) to track a new index. Vanguard changed over a lot of their benchmark indexes to CRSP though a few years ago, and it was probably a decent amount of work on their part but better for the shareholders.

      Honestly, zero is interesting but one day we’ll probably have a negative expense ratio due to securities lending revenue.

      • Does it make sense to leave my low-cost funds where they are, and put new money in the zero-cost fund going forward? Are they really ok with me buying into a new fund with one dollar?

        How exactly does “self-indexing” work? Does their portfolio need to be different enough from the licensed index to prove they didn’t just copy it? This doesn’t make it “actively managed”?

    • This is simply a method of bringing more customers into the store. They are hoping you’ll buy other products once you’re inside. The new zero fee funds are only available directly to Fidelity retail customers. It’s a good approach and benefits both sides.

      If you don’t already have a Fidelity account and don’t want to open one, then you can stick with FSKAX or the equivalent from Vanguard, Schwab, or Blackrock.

  2. John Conner says:

    how do they make money?

  3. Moe Howard says:

    I don’t care if its a marketing ploy or not. Every time one of the financial institutions announces lower trading/fees/costs, it puts pressure on the others. I remember eTrade charging $19.95 per trade in the 90s. They also had to cut trading fees when Schwab lowered their trading fees.

  4. Even if Fidelity is able to get ahead of Vanguard, they’re still a great company.

    Their credit card rewards dollars can be deposited in a brokerage account. Pretty nice innovation.

    • Fidelity has been cheaper than Vanguard for quite some time. Now with this elimination of share classes and the major fee reduction, Fidelity is much cheaper. 🙂 In addition, you can do al of your banking at Fidelity for free too. Vanguard has no such equivalent. And of course, Fidelity’s website, customer service and overall customer experience has always been far better than Vanguard.

  5. The zero wire transfer fee is big since it removes pretty much the last hurdle from making the CMA a fully functional checking account replacement (since money can now be wired back to a local bank without a fee if needed for a same-day large cash withdrawal or cashier’s check). The no-minimum for their mutual funds also means that SPRXX can be used at any balance level in the CMA to hold cash at a decent interest rate (it will auto-redeem for debits).

    • Now that the expense ratios are all matched, I wonder if there are even better interest rates on their money market funds? I know Fidelity has several of them.

      • They didn’t change the expense ratios on anything other than the new “zero” funds, unfortunately, just changed the minimum investment for the base-level funds to zero. I did check the money market funds yesterday and it looks like SPRXX is still the best; it’s not a zero minimum for the $100,000 min or higher ones.

        • Fidelity lowered the expense ratio on all their stock and bond index funds to the expense ratio of the Institutional Premium share class. For example, Fidelity® Total Market Index (FSTMX) is now the same expense ratio as FSKAX, 0.015%. That’s lower than it was before. I believe it was 0.09% before.

          In addition to offering the industry’s first self-indexed mutual funds with a zero expense ratio, 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 annuallyii. 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.iii In addition, Fidelity beats Schwab’s prices for nine of 10 comparable index mutual funds (and is tied on the 10th index mutual fund).

          I was wondering if they extended this to their money market funds. It doesn’t look like it though.

  6. If you have a Fidelity 401(k) through your employer. don’t waste your time setting up a BrokerageLink account if you don’t already have one; they’ve blocked the new zero-fee funds from being purchased in those accounts to protect their fee revenue on retirement accounts.

    • They said up front that the 2 zero fee funds were available for retail brokerage accounts only. This is to get people in the door. When buying funds through another channel, you can still buy their index funds essentially for free anyway (i.e… FSKAX is .015%).

  7. I’m researching options for investment accounts for my young kids, for investing and pedagogical purposes. Therefore I want accounts that let them deposit/buy shares with small amounts. It looks like Fidelity is what I’m looking for – are there any zero minimum options out there? Thanks!

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