Fidelity Funds .004% Management Fee Each Year

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
LTCPDA
Posts: 5
Joined: Wed Jun 27, 2018 8:04 am

Fidelity Funds .004% Management Fee Each Year

Post by LTCPDA » Tue Jul 10, 2018 12:50 pm

Good afternoon,
I am considering giving Fidelity $500,000 to purchase and manage 25-50 municipal bonds. The $2,000 fee applies each year, one reason is for "arbitrage purposes". I want to keep the bonds to maturity or to call. Is this annual fee worth it? Thank you for your thoughts.

User avatar
jhfenton
Posts: 3003
Joined: Sat Feb 07, 2015 11:17 am
Location: Ohio

Re: Fidelity Funds .004% Management Fee Each Year

Post by jhfenton » Tue Jul 10, 2018 12:54 pm

LTCPDA wrote:
Tue Jul 10, 2018 12:50 pm
Good afternoon,
I am considering giving Fidelity $500,000 to purchase and manage 25-50 municipal bonds. The $2,000 fee applies each year, one reason is for "arbitrage purposes". I want to keep the bonds to maturity or to call. Is this annual fee worth it? Thank you for your thoughts.
That's a 0.40% (40 bp) management fee, not 0.004%. I would happily pay 0.004%. I would readily pay 0.04%. I would probably not pay 0.40%.

Dudley
Posts: 91
Joined: Tue May 09, 2017 5:34 am

Re: Fidelity Funds .004% Management Fee Each Year

Post by Dudley » Tue Jul 10, 2018 12:57 pm

I think for you it is worth it.

MichCPA
Posts: 15
Joined: Fri Jul 06, 2018 9:06 pm

Re: Fidelity Funds .004% Management Fee Each Year

Post by MichCPA » Tue Jul 10, 2018 12:58 pm

I think it is actually 2000/500000= .004 = .4%. That is higher than the Vanguard Advisory fee (.3%?) and I would probably not do it. Its a big portion of current muni yields. I also wouldn't get bonds in a long enough term for call-ability to become a big thing. When I used to audit municipal govs that was usually a 10 yr period before bonds could be called (YMMV based on the specific gov obviously). If you stick to intermediate and short bonds (like I would in a rising rate environment) that doesn't provide value.

DippityDoo
Posts: 98
Joined: Mon May 29, 2017 6:06 pm

Re: Fidelity Funds .004% Management Fee Each Year

Post by DippityDoo » Tue Jul 10, 2018 1:14 pm

jhfenton wrote:
Tue Jul 10, 2018 12:54 pm
I would probably not pay 0.40%.
Strongly agree! i'm a satisfied Fidelity customer but I would never pay that kind of fee for them to manage any kind of asset. if I intended to hold muni bonds until maturity, I'd simply buy them via the Fido web site myself. I formerly held 3 inherited muni bonds at Fidelity. Two reached maturity and one was called early. Everything was simple to understand on their web site, even for a novice investor like me. It's hard to imagine that you would need to pay someone at Fidelity if you seek advice from others knowledgeable about munis here on this forum.

Best wishes.

TxInjun
Posts: 60
Joined: Fri May 29, 2015 12:05 pm

Re: Fidelity Funds .004% Management Fee Each Year

Post by TxInjun » Tue Jul 10, 2018 1:24 pm

OP, is this planned to be managed via a Fidelity partner e.g. Breckinridge (their spelling, not mine), or Fidelity themselves?

User avatar
HueyLD
Posts: 5784
Joined: Mon Jan 14, 2008 10:30 am

Re: Fidelity Funds .004% Management Fee Each Year

Post by HueyLD » Tue Jul 10, 2018 1:30 pm

Buying individual bonds is difficult as an individual investor because the dealer always has the upper hand.

If you buy only new issues, you pay the same price as the big boys. If you buy from existing bonds, you will be paying for the spread that can sometimes be very large.

And buying individual bonds can be quite a bit of work because to do it right you need to understand the issuer's credit worthiness, interest rate risk, types of bonds, etc. As an example, an AA rated GO and an AA rated hospital bond are not of equal credit risk even though they carry the same rating. And buying bonds from the secondary market requires a lot of patience because you have to submit your bids and may have to do it a few times on the same issue to get your price accepted.

At your age, I suggest that you stay with mutual funds but limit your interest rate exposure by shortening the duration of the bonds. Since nobody really knows what the future may hold, it may be a good idea to hedge by spreading your bond portfolio into 1/3 ST, 1/3 intermediate and 1/3 LT.

Fidelity is my favorite brokerage, but I wouldn't pay 40 basis points for them to manage my fixed income portfolio.

LTCPDA
Posts: 5
Joined: Wed Jun 27, 2018 8:04 am

Re: Fidelity Funds .004% Management Fee Each Year

Post by LTCPDA » Wed Jul 11, 2018 5:40 am

Thank you all very much for your replies.
The FIDO service charging the annual .40% fee is the Fidelity Portfolio Advisory Service. I am 70 years old and would feel more comfortable with individual muni's due to interest rate risk. I can live better with the individual bonds holding to maturity than the Fund NAV sinking. I am familiar with the differences between muni bonds, so would not a ladder suffice? But then again, I see the merits of a ST, Inter, and LT Vanguard muni bond fund. Is there any one thought you could provide me to make this decision? Thanks again.

yougotitdude
Posts: 16
Joined: Fri Sep 15, 2017 12:40 pm

Re: Fidelity Funds .004% Management Fee Each Year

Post by yougotitdude » Wed Jul 11, 2018 6:40 am

What about these?

https://www.ishares.com/us/strategies/b ... nd-ladders

The expense ratio is .18%. They have munis every year until 2024.

Also, at one time, Fidelity would build you a bond ladder for free if you talk to their fixed income department. I'd imagine they still do but not positive.

Murgatroyd
Posts: 62
Joined: Sun Jan 21, 2018 8:23 pm

Re: Fidelity Funds .004% Management Fee Each Year

Post by Murgatroyd » Wed Jul 11, 2018 7:28 am

yougotitdude wrote:
Wed Jul 11, 2018 6:40 am


Also, at one time, Fidelity would build you a bond ladder for free if you talk to their fixed income department. I'd imagine they still do but not positive.
The above is correct. If you call the bond desk you can get the undivided attention of a specialist for no cost. I did this about 2 years ago with a smaller muni bond ladder then continued to purchase them myself with what I learned from the experience.
It was not hard.

Good luck!

Post Reply