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Wednesday, August 1, 2018

Free Mutual Funds Are Here

Reported by Neil Anderson, Managing Editor

Kathy Murphy and her team have taken the retail asset management fee war to a new extreme: they're creating mutual funds that include no expense ratio at all. And they're also making it easier for retail investors and financial advisors to use all of Fidelity's [profile] other mutual funds.

The Fidelity ZERO Total Market Index Fund (FZROX) and the Fidelity ZERO International Index Fund (FZILX), both self-indexed by Fidelity, will launch on Friday, company spokeswoman Nicole Goodnow confirms. At least for now, these funds will only be available to Fidelity's direct retail investor customers, not through retirement plans, FAs, or outside platforms. Yet the Boston Behemoth is also eliminating fees to open and maintain new Fidelity retail accounts, so the requirement of having a Fidelity account may not be much of a burden for retail investors who want to use the two free funds. Perhaps Fidelity will use securities lending to help defray the cost of running the new free funds.

Yet Murphy also unveiled changes that will impact FAs, regardless of whether those FAs' firms use Fidelity for clearing and custody. Fidelity is eliminating investment minimums for all of its own mutual funds (active and passive alike) and 529 plans, both for direct retail investors and through FAs.

Fidelity is also cutting expense ratios on its current index funds to be cheaper than equivalent Vanguard funds and cheaper than (or, in case, tied with) equivalent Schwab funds.

Murphy describes the changes as Fidelity "once again rewriting the rules of investing." For fundsters familiar with the 401(k) side of the business, Fidelity's moves today are reminiscent of the firm's 1990s popularization of the bundled, mutual-fund-based 401(k) plan (where the plan was free so long as it used Fidelity mutual funds). She calls the moves "unmatched by any other financial services company." 

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