With competition heating up among target-date fund providers, Fidelity Investments is lowering the expenses on some of its target-date funds used in retirement and taxable accounts.
In a move first spotted by Pensions & Investments, the Boston-based fund company said in a Securities and Exchange Commission filing that it is lowering the expense ratio on several funds. In an interview with Pensions & Investments, Eric Kaplan, head of target-date investment products at Fidelity, said that the fee reduction is aimed at making its products "more competitive and to provide the most value."
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Fidelity is lowering the fees on target-date funds including the Freedom Index Funds institutional premium class and the Freedom Index Funds for investors. The expense ratio has been reduced to eight basis points from 10 for the institutional class and to 14 basis points from 15 for the investor class version. The fund company is also reducing the expense ratio of its FIAM Index Target Date Strategies, with Pensions & Investments reporting that firms with less than $100 million in target-date fund assets under management will get a reduction in fees to 14 basis points instead of 15. For customers with between $100 million and $200 million invested in target-date funds, the fee is eight basis points. Previously, the fee was 10 basis points. Those with larger assets in target-date funds will also get a break on fees.
The move on the part of Fidelity comes as target-date funds are growing in popularity among all sorts of investors. According to Vanguard, the king of low-cost investing and one of the world's largest fund managers, over the past decade, more than half of 401(k) investors are invested in a single target-date fund compared with only 13% of 401(k) participants 10 years ago.
Target-date funds, which tend to become more conservative the closer the investor gets to retirement, have changed the investment patterns of those saving for retirement, with the investment product increasing diversification and deterring trading, Vanguard said. Driving the growth of target-date funds over the past decade has been the advent of automatic enrollment, which Vanguard found tripled in the past 10 years to close to half of all plans. Plans with automatic enrollment have a 92% participation rate compared with a 57% participation rate for those plans that a retirement saver has to opt into.
Currently, Fidelity is in second place when it comes to target-date funds. According to the most recent survey from Pensions & Investments, Fidelity Investments fund families, which are heavily focused on equities, account for around one-fifth of all the assets that are invested in target-date funds, enabling the firm to maintain its second-place position. Vanguard is in the lead, seeing $189 billion of inflows during the five-year span and net inflows of $51.4 billion in 2017.