
Fidelity Introduces Zero Expense Ratio Index Funds - prostoalex
https://www.businesswire.com/news/home/20180801005635/en/Fidelity-Rewrites-Rules-Investing-Deliver-Unparalleled-Simplicity
======
SpaethCo
While the new funds are attracting all the attention, I find these other
changes more interesting:

Expense Ratios have been slashed across existing funds:
[https://www.fidelity.com/mutual-funds/investing-
ideas/index-...](https://www.fidelity.com/mutual-funds/investing-ideas/index-
funds)

Premium, Investor, and Institutional classes are all being merged into 1 class
with lower fees and no minimums: [https://www.fidelity.com/bin-
public/060_www_fidelity_com/doc...](https://www.fidelity.com/bin-
public/060_www_fidelity_com/documents/press-release/Fidelity-Redefines-
Investing.pdf)

For people holding existing Fidelity index funds, you just start paying less
now without having to do anything.

~~~
astura
I got this email this morning, short and sweet:

\---

As of August 1, 2018, we introduced the following changes, which will be
automatically applied to your affected Fidelity accounts:

• Removed account fees and minimums

• Eliminated domestic money movement fees

• Lowered expense ratios on all Fidelity stock and bond index mutual funds

• Introduced two index mutual funds (FZROX and FZILX) with a zero expense
ratio

No action is required on your part.

\---

I've never paid a fee for domestic money movement (EFTs) so I wonder what that
refers to.

Fidelity also has an extremely attractive product in their cash management
account (free checking account with ATM reimbursements)

~~~
mrb
« _Fidelity also has an extremely attractive product in their cash management
account (free checking account with ATM reimbursements)_ »

Yes, just like Charles Schwab. I wonder why most Americans don't know about
this and either pay ATM fees, or endure the hassle of never using an ATM
outside of their bank network.

~~~
dangero
How do you do ATM deposits?

~~~
mrb
I deposit checks through Schwab's Android app. But this only works for checks
under $10k. Above that you have to deposit them at a Schwab location.

~~~
1stranger
You can also mail checks in (though I don't know about $10k and above).

~~~
whyenot
You can mail checks much larger than $10k in. That is what I usually do, as
it’s less of a hassle than getting to a branch during business hours. Schwab
even provides post paid enevelopes for you to use.

------
mbesto
As always, good analysis by Matt Levine: (go down to "How much should an index
fund cost?")

[https://www.bloomberg.com/view/articles/2018-08-02/-metoo-
is...](https://www.bloomberg.com/view/articles/2018-08-02/-metoo-is-a-due-
diligence-issue-now)

[https://www.bloomberg.com/news/articles/2018-08-01/fidelity-...](https://www.bloomberg.com/news/articles/2018-08-01/fidelity-
to-offer-index-mutual-funds-with-zero-expense-ratio)

~~~
nabla9
>Again this dynamic is sort of terrible! In a perfect world you’d want clients
and banks to develop relationships, to know and trust each other, to build
mutually beneficial sequences of repeated interactions rather than just trying
to gouge each other in atomistic arm’s-length trades.

Why this should be the case? Ideally, you want maximally impersonal bulk
markets for buying and selling assets. Finance industry should have smaller
and smaller profit margins. Only those relatively rare cases where someone can
provide value over others the trend is reversed.

~~~
lmm
> Ideally, you want maximally impersonal bulk markets for buying and selling
> assets. Finance industry should have smaller and smaller profit margins.

Some people would consider a personal, friendly market more valuable than a
maximally efficient one. Finance is a tool to help humans fulfill their
values, not the other way around.

~~~
cwkoss
What is a 'friendly' market in contrast to an efficient one?

Do you a prefer a market where you get a worse price, but your broker smiles
at you?

~~~
komali2
Yea, I do.

Just like I prefer selling my car on craigslist "priced to sell" to avoid
haggling.

Or helping people move for free with no implication that I'm owed a favor
later for it. Although I'm not sure we're still in "market world" at that
point.

------
whitepoplar
Free overnight checks. Free cashier's checks. Free wire transfers (incoming
_and_ outgoing)...on top of what was already free. This is great!

For those of you comparing Fidelity and Schwab for cash management, two
things:

1) Fidelity's debit card also reimburses ATM fees worldwide, but lists a 1%
foreign transaction fee for purchases. This doesn't apply to ATM withdrawals,
which don't count as purchases and are, in fact, 0%.

2) Schwab's interest rate on cash in their checking account is 0.25% last time
I checked. Fidelity's is similar, but they count purchased money market funds
as liquid, withdrawable cash, and automatically liquidate shares when needed
without intervention by you. So the effective interest rate on cash is
somewhere between 1.55% and 1.9%, depending on which money market fund you
choose. Schwab also has money market funds, but they're not treated as liquid
cash. You must manually sell shares, wait until settlement clears, and then
transfer funds into your checking account, which is a pain in the ass.

3) Not directly related to cash management, but useful nonetheless: Fidelity
advertises $4.95 brokerage trades. Every time I've called and asked, "Can you
give me free trades?," they give me free trades (usually 10-20) as a
"goodwill" perk. It's a 60 second phone call. Don't pay for trades!

EDIT: Perhaps notable for those who live in high tax states like NY or CA,
interest income from Fidelity's "Treasury Only" money market funds is exempt
from state taxes. Interest earned from a typical checking account or CD is
state taxable. You can also purchase municipal money market funds which are
exempt from state and federal taxes, but they have a lower yields.

~~~
bscphil
>So the effective interest rate on cash is somewhere between 1.55% and 1.9%,
depending on which money market fund you choose.

Wait, so are you saying you can get up to 1.65% interest on a withdrawable
cash fund? Perhaps I'm confused - are you including a penalty for liquidating
the shares in that, or just assuming you never liquidate?

I'm getting slightly better than that, but that's in a 5 year CD with a large
minimum deposit. The penalty for liquidating is the previous 6 months of
interest.

~~~
inyourtenement
Ally Bank savings accounts just went to 1.8%, and 2 year CDs are 2.5%, with no
minimums.

~~~
whitepoplar
2 year treasuries are 2.64% and they're exempt from state taxes.

------
themodelplumber
I'm not an investing pro, so I checked it out a little deeper. It looks like
they'll be making money in the background by selling short calls to other
investors and collecting interest on those. So they want this front end to be
super low friction; your money will be making them money. It seems that e.g.
Vanguard will also waive their fees under some circumstances. (Hope I got that
right)

~~~
whitepoplar
Almost all index funds participate in share lending. Vanguard does, and almost
100% of income is returned to shareholders. Blackrock's iShares does this too,
and Blackrock keeps ~20-30%. As far as I know, Vanguard's expense ratio for
their total market fund (VSTAX) is effectively 0% after income from share
lending.

~~~
tanderson92
> and Blackrock keeps ~half.

This is untrue. Per
iShares([https://www.ishares.com/us/literature/brochure/securities-
le...](https://www.ishares.com/us/literature/brochure/securities-lending-
unlocking-portfolios-en-us.pdf)):

> Q: How much of the securities lending proceeds are paid to iShares ETFs?

> A:. iShares ETFs receive 71.5-80% of the income generated from securities
> lending depending on the asset class held. For example, iShares ETFs that
> predominantly hold US equities receive 71.5% of the income from securities
> lending. All other funds (i.e., fund-of-funds and funds that invest
> predominantly in fixed income or international equities) receive 80% of the
> income from securities lending. Once the aggregate securities lending income
> exceeds a certain income threshold amount, each iShares ETF will receive an
> increased percentage of the income above original levels, i.e. from 71.5% to
> 75% for US equity iShares and from 80% to 85% for all other iShares, for the
> remainder of that calendar year.

By the way, Fidelity isn't making money off of securities lending on these
funds, or at least has pledged not to. I still wouldn't use the funds, though.

~~~
p10_user
Curious, why wouldn’t you use these funds? Do you still prefer ishares or
vanguard?

~~~
tanderson92
If forced to use Fidelity as a brokerage I would prefer iShares; however, I
would prefer to not use Fidelity. I do most of my investing in non-retirement
accounts and as a result tax efficiency is a concern. For this, ETFs (by any
provider) and Vanguard mutual funds are typically superior to straight index
mutual funds. The reason Vanguard mutual funds are unique in this respect is
that they hold a patent allowed assets to be comingled between their ETF and
mutual fund share classes, so the superior tax efficiency aspects of the ETF
can be shared with the mutual fund (and vice versa).

Also, Vanguard as a corporation is owned by its fund shareholders as opposed
to external shareholders while Fidelity is owned by a private group. I don't
trust any company enough to lock up my money with them and possibly have to
pay capital gains tax to switch later, if they decide to raise fees or make
the investment not align with shareholders in some respect. As whitepoplar
says, they're a profit-seeking entity. Due to the inverted corporate ownership
structure of Vanguard this is not a concern. This argument also applies to
iShares.

~~~
komali2
>The reason Vanguard mutual funds are unique in this respect is that they hold
a patent allowed assets to be comingled between their ETF and mutual fund
share classes, so the superior tax efficiency aspects of the ETF can be shared
with the mutual fund (and vice versa).

Wait, what? What does this actually look like for you on your taxes? This
sounds like something that would be out of your hands/tax responsibility.

~~~
zrail
Most of Vanaguard's ETFs are just another class of the overall mutual fund. So
for example, the Vanguard Total Stock Market Index Fund has four (I think)
share classes: Investor, Admiral, Institutional, and ETF. Vanguard arranges
things such that shares of stock in the underlying fund that have lots of
built-in gains are shoved into ETF shares, which means they don't have to sell
them when people redeem shares of the mutual fund classes.

tl;dr: basically they just never have to sell shares with built-in capital
gains so you rarely see a capital gains distribution when you use Vanguard
index funds.

------
asdfman123
I still trust Vanguard now because they're not-for-profit. I own a certain
percentage of it by buying their index funds and I know their interests are
beholden to mine.

The ER for Vanguard still only 0.15%, which is about $12/mo per $100k
invested.

~~~
mkozlows
0.04% for Admiral shares, aka the ones for people who have $100k.

~~~
froindt
Admiral shares come in at 10k for most of their funds. E.g. VTSAX has the
0.04% ER and a 10k minimum, while the Investor class is at 0.14% (VTSMX).

[https://investor.vanguard.com/mutual-
funds/fees](https://investor.vanguard.com/mutual-funds/fees)

> Admiral Shares

> * $10,000 for most index funds and tax-managed funds.

> * $50,000 for most actively managed funds.

> * $100,000 for certain sector-specific index funds.

~~~
TheCoelacanth
Does that include target retirement funds and the like that include a mix of
different asset classes? Last time I looked I didn't think it did, so you
would need more than $10k if you want to do the sensible thing and not have
100% of your assets in stocks.

~~~
froindt
The target date funds seem to have a 1k minimum with an ER of 0.13-0.15%. [1]
There are no admiral shares for target date funds. Across their other mutual
fund offerings, investor shares generally have a similar expense ratio to the
target date funds with a 3k minimum.

When I was getting started, it took awhile before I was diversified beyond a
single fund (currently not using the target date funds), then eventually
getting up to admiral shares.

> Last time I looked I didn't think it did, so you would need more than $10k
> if you want to do the sensible thing and not have 100% of your assets in
> stocks.

Looking through all their target date funds, none have more than 90% stocks.
The 2015-2040 funds have 60% to 15% bonds, with all later dates at 10%.

[1] [https://investor.vanguard.com/mutual-funds/list#/mutual-
fund...](https://investor.vanguard.com/mutual-funds/list#/mutual-funds/asset-
class/month-end-returns)

~~~
TheCoelacanth
Right, target date retirement funds are never 100% stocks because only a crazy
person would have a portfolio of 100% stocks.

You can't have a sane portfolio of admiral shares with only $10k because you
would have to be invested 100% in a single asset class which is never a good
idea.

------
mamurphy
Reddit had a few good discussions of this if you are interested:
[https://www.reddit.com/r/personalfinance/comments/940jdc/fid...](https://www.reddit.com/r/personalfinance/comments/940jdc/fidelity_launches_zero_fee_index_funds/)
;
[https://www.reddit.com/r/personalfinance/comments/93s4mj/fid...](https://www.reddit.com/r/personalfinance/comments/93s4mj/fidelity_to_offer_0_expense_ratio_index_funds/)

------
patja
Vanguard is great as long as you don't ask much of them.

I used to have my accounts split between Fidelity and Vanguard. But after
several botched transactions where Vanguard reps gave me inaccurate
information about their own processes, and lost or claimed to have never
received multiple mailed signed documents (with difficult-to-obtain Medallion
signatures), I switched everything to Fidelity and am much happier. I have
never failed to get a knowledgeable/expert person on the phone whenever I've
called Fidelity, which is a stark contrast to my experience with Vanguard.

~~~
opmac
This is true to my experience as well, although I'm still a loyal Vanguard
customer. I actually got dubious tax advice from a Vanguard rep that could
have screwed me if I didn't do a bit more research. That being said, I do tend
to prefer them over Fidelity (I am currently a customer of both), but maybe
it's worth taking a closer look now.

~~~
JibJabLab
Does Vanguard offer tax advice? Why not reach out to a tax accountant?

~~~
opmac
I asked what the tax implications were for performing a backdoor IRA
conversion for an account I hold with them, and what they told me regarding
tax implications was straight up incorrect. I did eventually speak to an
accountant, which is how I wasn't burned by them.

------
berberous
For those interested in more detail and discussion, this is probably the most
informed place on the internet to discuss it:

[https://www.bogleheads.org/forum/viewtopic.php?t=255356](https://www.bogleheads.org/forum/viewtopic.php?t=255356)

------
bitxbit
What people fail to see with this is that Fidelity (and other large money
managers) effectively control supply. You think "oh great zero ratio!" but in
reality the cost of having these market concentrations far exceeds a few basis
points to individual investors. I would argue that the next financial crisis
will be very much linked to ETFs and related beta products.

~~~
cwkoss
Yeah, ETFs are basically a herd-following strategy. When a higher proportion
of traders aren't herd-following, this is an efficient strategy. However, as
the proportion of herd-followers increases, the information held in a
company's stock price increase is less indicative of faith in that company and
more of faith in the overall sector. This has led to our current bubble, where
everyone is buying stock, so the price goes up, so everyone wants to buy
stock.

No clue where the top is going to be, but it feels like this one is going to
be uglier than 2008.

~~~
1stranger
> No clue where the top is going to be, but it feels like this one is going to
> be uglier than 2008.

Pretty sure an asset bubble (which we've experienced many times in the past)
will not be worse than the entire financial system melting down.

------
Veraticus
I wonder if there's a natural cost to operating a fund, that would make this
kind of product unsustainable, long-term? In contrast, Robinhood can provide
free trades, and M1 Finance can provide free portfolio-oriented management,
but they also both have good explanations for their underlying business
models.

To be transparent, I work at M1 Finance, and I invest in a few Fidelity ETF's;
still not sure how I feel about this one.

~~~
TuringNYC
>> have good explanations for their underlying business models

Where could I find this? I havent seen it anywhere and have been half-worried
they will either jack up prices or sell-out customers hanging like
CapitalOne/ShareBuilder did. What is their short term and long term revenue
model that would make their [awesome] product sustainable?

Aside: I love M1, especially after CapitalOne/ShareBuilder left their
customers hanging.

~~~
theautist
I think both Robinhood and M1 Finance collect interest on their customers'
cash and securities. Robinhood also makes money by offering margin to its
customers and I believe M1 Finance has a similar but more general offering
called M1 Borrow where the money borrowed can be used anywhere instead of just
trading.

------
jorblumesea
Vanguard returns 94% of the securities lending business of the fund, back to
the fund. Fidelity is around 40%, iShares is 50%. Meaning even with fees,
Vanguard is a better deal as you get more money back on the money that you
own.

It's more complex than just simply measuring fees.

These are some additional factors to consider:

 __Tracking Error

 __Capital Gains

 __Securities lending

 __Mutual Ownership Structure

[https://personal.vanguard.com/pdf/ISGSL.pdf](https://personal.vanguard.com/pdf/ISGSL.pdf)

[https://www.ishares.com/us/literature/brochure/securities-
le...](https://www.ishares.com/us/literature/brochure/securities-lending-
unlocking-portfolios-en-us.pdf)

~~~
xur17
If I'm understanding correctly, if I compare the performance of my VTSAX fund
vs all of the stocks that make it up, VTSAX would show better performance
because it includes money made from lending out securities? This seems like a
major spot for consumer confusion - how do these funds decide what percentage
to return back to the fund vs keep? Why wouldn't Fidelity keep 100% of these
fees, and then charge a negative fee?

~~~
jorblumesea
> VTSAX would show better performance because it includes money made from
> lending out securities

Correct, VTSAX would probably perform better by a small margin, but it's also
hard to compare given that everyone rolls their own "Total Market Index" with
slightly different stock composition. At the very least, you're getting more
of your money back to you.

> how do these funds decide what percentage to return back to the fund vs
> keep?

Depending on how much money they want to make :)

vanguard is actually a mutually owned firmed, the only one. So they have
little incentive to tax themselves. When you buy vanguard funds, you are also
buying ownership of vanguard.

> Why wouldn't Fidelity keep 100% of these fees, and then charge a negative
> fee?

Because people have no idea how any of this works and "0% expense" rings out.
They can make more money this way.

------
nabla9
[https://nordnetab.com/](https://nordnetab.com/) has zero expense index funds
for Finland, Sweden, Norway and Denmark.

They are only available for their customers, but it's a great way to get new
customers. They don't have any extra fixed fees either, so it's not a scam.
It's just good marketing.

------
allochthon
To restate the question that was raised below and then downvoted, I'm curious
what the business model and business strategy are with these funds. The press
release gives us a sense of the benefit to consumers; what is the flipside?

~~~
bradleybuda
Matt Levine discussed this in "Money Stuff" yesterday (sorry, can't find a
link). My understanding is that there are two reasons:

1) The bank still makes some money charging a fee to lend the shares in the
ETF to short sellers.

2) Fidelity sees this as a loss leader for higher-priced funds and traditional
investment advice / wealth management.

------
djsumdog
Coffee Break has a great video about Index Funds:

[https://www.youtube.com/watch?v=_vdB7gphtyo](https://www.youtube.com/watch?v=_vdB7gphtyo)

The TL;DW is that in many different studies, index funds preform better in the
very long term than almost any managed fund. Why pay some monkeys to manage
your money when an even distribution over a bunch of common stocks does just
as well?

~~~
bluGill
Two points in favor of paying someone.

First, most funds have goals other than beating the index, so if the index is
your goal we should ignore them. However why is the index your goal? If you
are far away from retirement (or whatever your reason for investing is), then
the index is a good goal, but as you get closer to retirement you need to have
an asset allocation that won't drop in value right when you need the money.
The index will not do that for you.

Second, of those that attempt to match/beat the index, some of them do beat
the index year after year. IF you can get in one of them you are better off.
Note that IF is in all caps - this is a big if, very few managed funds beat
the index on a regular basis. However if some fund manager beats the index
year after year, that manager ought to be worth a lot of money to you (so long
as after expenses he beats the market)

After considering the above, most of my money is in a target date retirement
fund with a low expense ratio. I know I'm not going to beat the index, but as
I get older they balance things. I know someone invested all in an index who
retired right before a crash, the crash combined with his withdrawals to live
cut his principal enough that he is now broke. (I suspect he didn't have
enough savings to retire in other than best case scenarios, but even so his
required capital to retire is higher in a stock index). I do have some play
money in an index fund, if things go well I'll retire early on that cash, if
things go bad, at least my normal retirement is not in trouble.

~~~
AnimalMuppet
Re beating the index: Here's a bunch of managed funds that try to beat the
index. Some do better, some do worse - say, 50/50\. The next year, half do
better, half do worse, and it's (for the most part) unrelated to the year
before. So now you have 25% of the funds having beaten the index two years in
a row. As you said, very few managed funds beat the index year after year. But
even for those funds, the question is, will they beat the index _next_ year
with greater than 50% probability? I'm not sure that any of them will.

~~~
bluGill
One year is far too small a time period. I'm only interested in are funds that
over a 10 year period have beat the index. A good manager will have good and
bad years. One or two years of doing worse than the index are perfectly fine
with me. Unfortunately after about 10 years the manager tends to retire, so
just as we finally learn which funds are worth the price a new manager takes
over, and new managers have a tendency to not do as well.

~~~
jldugger
> just as we finally learn which funds are worth the price a new manager takes
> over, and new managers have a tendency to not do as well.

This seems like a testable hypothesis. If experience pays dividends, or if
novices pay a penalty, you'd expect to find this to persist over time.

~~~
bluGill
That is an interesting hypothesis, but it isn't the one I was suggesting.

I was suggesting that the rare great manager regardless of experience will do
well over long time periods. Those managers do not pass their
experience/knowledge on to those who take over from them.

~~~
jldugger
I'm not sure great fund managers exist at all. I'm sure you can find a few
emphatically bad ones, I guess.

For whatever rare managers who do well over long periods of time, why isn't
that knowledge transferable? I can think of two possibilities:

1\. They have had an incredible run of luck. When you have process with
randomness baked in, and thousands of managers, someone is expected to beat
the average 10 years in a row.

2\. A well cultivated network of insider information, or other nefarious
means. Madoff claims to have started his Ponzi scheme in the early 90's, and
it took multiple decades for that to be uncovered. Similarly, Cornblum and
Grmovsek took 14 years to be discovered.

------
reverend_gonzo
For people wondering how this can be of any benefit to Fidelity, here's a
couple options:

1) They lend the stock to shorters and make money off the interest.

2) They get people into their ecosystem. As most people don't keep a dozen
different accounts, they can get people to start using their checking and
savings accounts (where Fidelity makes money from lending a fraction of the
balance). People might also be more likely to use their loan products, credit
cards, or other services, which are obviously benefical to Fidelity.

There's likely other benefits to them as well, especially given that index
funds don't require any real human oversight.

Edit: Given other info posted, it's really just #2. This is a loss leader to
get customers.

~~~
smileysteve
I read #2 in their press release;

But; it seems like a poor marketing decision; You're attracting people who
want no fees and subscribe the the Random Walk Model - then you prove the
Random Walk Model. I don't see how this encourages people to go into more
different funds.

Maybe for asset allocation for near term cash volatility.

~~~
Fomite
As a counter-example, I chose Schwab for their low fees, because the _bulk_ of
my investments are in index funds.

But that doesn't mean they all are. Schwab is _also_ both my bank and my
active investment broker of choice. The reason for that is because it's nice
to have all my stuff in one place, viewable from a single screen.

------
Animats
\- Account transfer out: $25 (Vanguard: $0)

\- Reorganization fee (?): $39 (Vanguard: $0)

\- Late Settlement Fee: $25 (Vanguard: 0)

So that's how they make money off of this. It's index funds, the payday loan
edition.

~~~
jimmyswimmy
Those are not exactly common fees! I think you're pretty off base here. The
first two fees probably ~once every five years on the upper end (how often do
you change the registration on an account?) and the last is entirely up to
you.

Besides which, these fees are 0.25-0.39% each on a 10k account. I bet most of
their accounts are much larger, and so the fees are proportionally smaller.
Suppose you're charged $39 every three years - hard to imagine on that fee
schedule - on your 10k account, that's around 0.13% per year. And that's a
crazy high estimate for a relatively small brokerage account. It's not a way
for Fidelity to stay in business.

------
paulpauper
I don't understand why the difference between .05%.15%, .001%, etc is such a
big deal. IT's all within a tenth of a percent. Unless you live to 300 or
something and never move the money, it won't matter that much. I think SPY is
the best because it has low fees and can be traded like a stock, which means
you are getting the best possible execution down to the penny.

~~~
orthros
It's a big deal because the numbers will (hopefully) get large quickly.

A $3M account that pays an extra 0.1% per year is dinged for $3,000 a year,
every year. The cumulative compounded effect over 20 years is north of $75K.

------
pascalxus
I've noticed a lot of consolidation in 401Ks moving towards Fidelity. This has
caused me some doubt as to their long term trustworthiness since greater power
usually results in lower value for end customers. so, i'm pleasantly surprised
to see them offering such a great product.

------
maxxxxx
I would prefer they offered funds at cost plus some profit . It seems all
"free" products come with some major downside because the company that offers
them must make money through some sleazy backdoor. See Google, Facebook and
others.

~~~
gxs
Agree - I applaud the effort but I will stick with Vanguard for the
foreseeable future.

------
alainchabat
It's been a while I'm thinking about this. As an european (french if that
helps), living in asia , does that worth it to invest in an american fund ?
Anyone has a recommendation?

Thanks!

------
tibbon
Sooo... if it's possible (I have a Fidelity 401k), is it a good or terrible
idea to put a small % of my 401k into this?

~~~
theandrewbailey
There would be that nasty early withdraw penalty on that (probably). Not sure
if it would be worth it in the long run. (IANA investor)

~~~
astura
What‽‽‽‽

Changing your fund allocations within your 401(k), in general, doesn't trigger
any penalties and is not a withdraw.

~~~
theandrewbailey
I was under the impression that it was about taking funds out of the 401k
entirely (because the article doesn't mention 401k anywhere), not about
changing the fund allocations within the 401k.

~~~
froindt
Whether the funds would be removed wasn't explicitly clear, but in a
roundabout way, you brought up a good point. 401k's typically have a select
20-40 funds you can choose from, and this won't necessarily be available to
GP.

That being said, I haven't had a 401k with Fidelity in 3 years and don't
recall if I had access to "everything" or if the fund choices are limited.

~~~
WorldMaker
I know Fidelity has limited Vanguard options in the past in its 401k and IRA
funds options, presumably for control/competition reasons. I'm definitely
curious how well Fidelity will promote its own index funds over actively
managed ones, given they are still competing on active fees versus passive,
but now just with themselves.

I am planning to take a look at my own Fidelity accounts this weekend and see
if they've surfaced these index funds well. It seemed encouraging from the
email this morning.

------
jacobcohen11
How can they make money?

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fiveFeet
The cost to run an etf does not (or at least should not) increase with Assets
Under Management (AUM). So if anything the providers should be charging a
fixed fee for the whole index fund instead of charging based on the AUM.

~~~
slivym
There's a cost associated with buying and selling the underlying equities
which is proportional to AUM.

~~~
fiveFeet
Hmmm... why? What is so different between trading 100 shares vs 1,000 shares
vs 100,000 shares? Trading is automated enough that a linear cost is not
justified.

------
misiti3780
how is fidelity making money on this product ?

------
refurb
Is this an example of the capitalism "race to the bottom" that everyone warns
me about?

If so, more please!

~~~
asdfman123
Interestingly, the reason expense ratios are now so low is that Vanguard
entered the market, basically innovated the index fund, slashed all the
expense ratios, and now everyone has to compete with them.

But Vanguard is not-for-profit company because it's owned by its shareholders.

I think capitalism works in a lot of situations and I'm not against it, but
there are certain scenarios where the "free market" logic doesn't really work
or apply because of various reasons. In medicine it seems to be a race to
higher prices.

~~~
theandrewbailey
> But Vanguard is not-for-profit company because it's owned by its
> shareholders.

Isn't every company owned by its shareholders, for-profit or not?

~~~
asdfman123
Whoops, I meant to say it's not-for-profit because it's owned by its
customers. If you buy any of their funds, you also buy a small piece of
Vanguard.

To be pedantic, I don't know if you would classify that as not-for-profit or
not, but the point is there isn't some external entity trying to make a profit
off of you.

~~~
gowld
That "not for profit" (mis)intetrpretation is a huge myth. The execs of
vanguard take home salaries and bonuses based on their performance, as decided
by management (themselves). That's economically equivalent to them being
owners and taking profits.

------
ppeetteerr
If you don't pay for the service, you end up the product.

~~~
craftyguy
While _usually_ true, it's not 100% true in all cases. In this case, it's
almost certainly a loss leader for other higher priced funds and other
financial advising/services they offer.

~~~
ppeetteerr
I don't buy it. This is a financial company. They don't compete with their own
funds for the opportunity to up-sell their customers.

~~~
craftyguy
And why not? Being a 'financial company' is not really a convincing argument
against them possibly up-selling here.

~~~
ppeetteerr
I'm not referring to the up-sell. They can upsell a cheaper service. Having a
free service means that every customer is extra cost. When you sell something,
however little you charge, you still charge just above recurring cost (unless
you're a startup). If you don't charge, then every customer is an expense.
Trusting that your sales team can up-sell hard enough to compensate for the
recurring cost of a customer is wishful thinking.

~~~
craftyguy
You're assuming that all fidelity customers are competent investors, when in
fact many (most?) of them are customers of fidelity only because fidelity is
the custodian for their company retirement plans. Many (most?) of these folks
had no idea why a ER > 1.0% was not good for them, but now that the word is
out, this could easily be a gimmick to convince more folks to choose fidelity
for servicing retirement plans and investments. So, 1) pick trendy topic among
casual (retirement) investors, 2) blow competition out of water by offering it
for free to get their attention, 3) gain trust and additional business from
casual investors

My employer uses fidelity for retirement plans (so I'm a customer, whether I
like it or not), and I'm bombarded by emails/communications very regularly to
sign up for various services from fidelity for 'planning for my future'. These
services ultimately cost a lot of money. Many of my coworkers have signed up.

