Fidelity and Vanguard are among the largest fund companies in the world, and both offer 401(k) plans as parts of their services. Since 401(k) plans operate under the same tax laws and regulations, there are three main areas of comparison: the companies themselves, the funds offered, and provider features.

Company Structure

Vanguard is owned by the clients who invest in its funds; it is similar to a customer-owned credit union in that regard. Since there are no external owners hoping to make profits, the fees are set just high enough to carry the actual operating expenses and keep the company healthy, but no more than that. The Fidelity owner structure is more traditional with external owners, notably a series of family trusts. This fundamental difference explains why Vanguard fees consistently undercut the market average by a wide margin. However, Fidelity is by no means a high-cost company. Many of its funds are considerably cheaper than the market average, even beating Vanguard in a few notable instances.

Fidelity has received criticism in the past for its practice of subcontracting funds, essentially allowing third parties to label their funds "Fidelity" and taking a cut of the earnings while stating a lower return on investment to the investor. Since the funds don't have to make the same disclosures that a real Fidelity fund would, investors were kept in the dark about the fact they were being bilked, according to Ken Himmler, a Los Angeles-based financial planner, author, and founder and president of H&H Retirement Design and Management.

A new set of disclosure rules went into effect in 2012 that should make 401(k) fees considerably more transparent. Each 401(k) provider is now required to disclose every cent it charges in the annual prospectus it sends to its clients.

Comparing the Funds

As of February 2016, Vanguard offers over 124 funds in its lineup, while Fidelity has approximately 575. Fidelity also runs a fund network with access to over 10,000 funds from hundreds of different providers.

The main strength of Vanguard is its razor-thin fees, especially for its index funds, which helps the bottom line for investors. A fee difference of 0.5% may seem insignificant at first blush, but many years or perhaps even decades of compounding makes the size difference of the nest egg quite significant in the end.

Meanwhile, Fidelity has a knack for attracting talented fund managers and has several exceptionally successful actively managed funds. The fees may be higher, but they may be worth it for niche sectors and regional expertise.

Who has the better offering boils down to what kind of investor you are. An active trader who likes to sniff out bargains and undervalued sectors will appreciate Fidelity's vast selection. By contrast, a passive investor who merely glances at the annual statement once a year may be better served by the slimmer but cheaper selection of fundamentals offered by Vanguard.

Features

Both companies offer plenty of educational material about retirement savings, asset allocation, compounding returns, and fund basics on their websites. Vanguard has more tailored resources for specific situations, while Fidelity has a cleaner interface, making navigation a breeze.

Each offers one-on-one phone consultations and assistance for starting new accounts, and each offers an easy rollover option for dormant 401(k) capital from previous employers. Fidelity maintains a number of investment centers in most metropolitan areas and runs free investment seminars on everything from financial basics to advanced income diversification strategies in retirement. Vanguard offers personal advisors who maintain client profiles and can be reached by phone or email for investment consultations.

In truth, both companies provide very high levels of user-friendliness on their websites and in their services. The key as a client is to figure out what features are most important to you, what type of funds you are looking for, and what the costs are.