First company to offer no-fee index fund

First company to offer no-fee index fund


Kathy Murphy, president of Fidelity’s personal investing business, said in an interview on CNBC on Wednesday afternoon that focusing on the inability to make money from no-fee funds misses the point about how the company can best leverage its scale with customers.

“We look at long-term relationships with clients and we benefit from clients having a relationship of 30 to 40 years with us. This isn’t the first thing we have made free to investors. We have tools and research and billpay, the overall relationship provides value.”

Fidelity has over 30 million clients and $7 trillion in assets, and Murphy said the zero-fee funds and related decisions to lower fees and remove account minimums and fees will appeal to all investors. “No barriers or nuisance fees,” Murphy said. “A full range of investors from millennials to baby boomers and people just starting out. … They all want a more simple, straightforward approach.”

Fidelity is the second-largest provider of index mutual funds in the U.S. after Vanguard.

While iShares has been among the ETF providers engaged in the low-fee battle, a BlackRock spokeswoman said it does not view this Fidelity move as competition, as it has an established relationship with Fidelity to highlight its ETFs and offer them free of trading commissions, and that is being expanded from 70 to 240 ETFs. “This, and the other actions Fidelity has taken, mean that it will be even easier for investors to access iShares ETFs,” BlackRock said in a statement.

Fidelity did not mention the increase in the number of iShares ETFs to be offered commission-free among the pricing and account changes highlighted in its Wednesday release.

BlackRock shares, and other fund manager stocks with a long history running mutual funds appealing to retail investors and financial advisors, such as Franklin Resources, Legg Mason and Federated Investors, were down significantly on Wednesday, with losses of more than 4 percent. But BlackRock made the case that this latest move in the fee war may be more about Fidelity versus Vanguard and Schwab — less than 5 percent of BlackRock’s non-ETF index assets are in traditional index mutual funds.

Many mutual fund experts say low-fee funds have been the most significant tool individual investors have at their disposal in reaching wealth and retirement goals since fees take a huge toll on potential investment returns over time, but they also have cautioned — especially as the fee war has intensified and moved closer to zero — that a fund’s expense ratio should not be the only reason that an investor chooses a particular portfolio.

This story has been updated to include comments from Fidelity and BlackRock.



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