Fidelity: When Zero does not mean free

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
bck63
Posts: 1329
Joined: Fri Sep 28, 2018 4:59 pm

Re: Fidelity: When Zero does not mean free

Post by bck63 »

It's performing perfectly so far. Beats VTSAX -- by one bp. :happy

EDIT, FWIW, after more thought several months ago, I decided to get rid of FXROX and go with FSKAX. The difference in ER is meaningless, and FSKAX actually beats FXROX AND VTSAX (the latter by a meaningless 2 bp. But still).
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

usagi wrote: Mon Sep 02, 2019 5:34 pm
nedsaid wrote: Mon Sep 02, 2019 2:00 pm

Hopefully we can keep the rivalries on this forum fun and in perspective. I am reminded of the "Tastes Great" and "Less Filling" beer commercials and I often refer to the Indexers vs. Factor Tilters as "Yankee Fans" vs. "Red Sox Fans."
My current favorite rivalry is the Chicken Triangle formed by the venerable Chik-Fil-A, Popeyes, Wendy's good natured fight for spicy chicken sandwich supremacy.
I have eaten at Wendy's and had their Chicken sandwich which is pretty good. Never had Chick-Fil-A or Popeyes. Chick-Fil-A has a restaurant in my metro area but they have a very small presence here in the west. My understanding is that Chick-Fil-A is just out of this world and better than Popeye's and certainly Wendy's.
A fool and his money are good for business.
usagi
Posts: 273
Joined: Wed Jun 05, 2019 1:08 am

Re: Fidelity: When Zero does not mean free

Post by usagi »

nedsaid wrote: Mon Sep 02, 2019 6:36 pm
usagi wrote: Mon Sep 02, 2019 5:34 pm
nedsaid wrote: Mon Sep 02, 2019 2:00 pm

Hopefully we can keep the rivalries on this forum fun and in perspective. I am reminded of the "Tastes Great" and "Less Filling" beer commercials and I often refer to the Indexers vs. Factor Tilters as "Yankee Fans" vs. "Red Sox Fans."
My current favorite rivalry is the Chicken Triangle formed by the venerable Chik-Fil-A, Popeyes, Wendy's good natured fight for spicy chicken sandwich supremacy.
I have eaten at Wendy's and had their Chicken sandwich which is pretty good. Never had Chick-Fil-A or Popeyes. Chick-Fil-A has a restaurant in my metro area but they have a very small presence here in the west. My understanding is that Chick-Fil-A is just out of this world and better than Popeye's and certainly Wendy's.
It seems that taste wise people are giving the edge to Popeyes on the spicy chicken sandwich, but it appears far more of a health nightmare when contrasted to Chik-Fil-A. But Wendy's has its adherents.

I am biased toward Chik-Fil-A however. I really have an issue with Popeyes in my very segregated city. We only have one Popeyes, but they send different coupons to different households based on demographics. Essentially in my area the coupon for 8 pieces of chicken is a dollar more than the one they send to homes on the other side of the river. And it is not just isolated to price. Talk about being labeled by where you live.
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

usagi wrote: Mon Sep 02, 2019 6:50 pm
nedsaid wrote: Mon Sep 02, 2019 6:36 pm
usagi wrote: Mon Sep 02, 2019 5:34 pm
nedsaid wrote: Mon Sep 02, 2019 2:00 pm

Hopefully we can keep the rivalries on this forum fun and in perspective. I am reminded of the "Tastes Great" and "Less Filling" beer commercials and I often refer to the Indexers vs. Factor Tilters as "Yankee Fans" vs. "Red Sox Fans."
My current favorite rivalry is the Chicken Triangle formed by the venerable Chik-Fil-A, Popeyes, Wendy's good natured fight for spicy chicken sandwich supremacy.
I have eaten at Wendy's and had their Chicken sandwich which is pretty good. Never had Chick-Fil-A or Popeyes. Chick-Fil-A has a restaurant in my metro area but they have a very small presence here in the west. My understanding is that Chick-Fil-A is just out of this world and better than Popeye's and certainly Wendy's.
It seems that taste wise people are giving the edge to Popeyes on the spicy chicken sandwich, but it appears far more of a health nightmare when contrasted to Chik-Fil-A. But Wendy's has its adherents.

I am biased toward Chik-Fil-A however. I really have an issue with Popeyes in my very segregated city. We only have one Popeyes, but they send different coupons to different households based on demographics. Essentially in my area the coupon for 8 pieces of chicken is a dollar more than the one they send to homes on the other side of the river. And it is not just isolated to price. Talk about being labeled by where you live.
Well maybe I am fortunate. The choice is Wendy's or Wendy's or better yet, Wendy's. There is a Chick-Fil-A in my area but it would be a pretty good drive to get there. We are pretty well served by Wendy's. There are pretty good restaurants that serve chicken sandwiches but they are just an option on the menu and not a specialty. My guess is that Applebee's would have a pretty good sandwich, they morphed over the years from being a family restaurant similar to Denny's to being more like a sports bar. Their food is pretty darned good.
A fool and his money are good for business.
User avatar
whodidntante
Posts: 9242
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Fidelity: When Zero does not mean free

Post by whodidntante »

nedsaid wrote: Mon Sep 02, 2019 6:36 pm
usagi wrote: Mon Sep 02, 2019 5:34 pm
nedsaid wrote: Mon Sep 02, 2019 2:00 pm

Hopefully we can keep the rivalries on this forum fun and in perspective. I am reminded of the "Tastes Great" and "Less Filling" beer commercials and I often refer to the Indexers vs. Factor Tilters as "Yankee Fans" vs. "Red Sox Fans."
My current favorite rivalry is the Chicken Triangle formed by the venerable Chik-Fil-A, Popeyes, Wendy's good natured fight for spicy chicken sandwich supremacy.
I have eaten at Wendy's and had their Chicken sandwich which is pretty good. Never had Chick-Fil-A or Popeyes. Chick-Fil-A has a restaurant in my metro area but they have a very small presence here in the west. My understanding is that Chick-Fil-A is just out of this world and better than Popeye's and certainly Wendy's.
There is only one Chik-fil-a near me. I ate there once. It was terrifying. It was staffed by dystopian youth leader well-programmed robots, who would reflexively express pleasure if you thanked them.
User avatar
firebirdparts
Posts: 1880
Joined: Thu Jun 13, 2019 4:21 pm

Re: Fidelity: When Zero does not mean free

Post by firebirdparts »

whodidntante wrote: Mon Sep 02, 2019 1:29 am I just figured I would buy into the ZERO International fund and see if the Vanguard cult could spot shenanigans.
So far Fidelity isn't the only one losing money. I am losing it too.
A fool and your money are soon partners
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

whodidntante wrote: Mon Sep 02, 2019 6:59 pm
nedsaid wrote: Mon Sep 02, 2019 6:36 pm
usagi wrote: Mon Sep 02, 2019 5:34 pm
nedsaid wrote: Mon Sep 02, 2019 2:00 pm

Hopefully we can keep the rivalries on this forum fun and in perspective. I am reminded of the "Tastes Great" and "Less Filling" beer commercials and I often refer to the Indexers vs. Factor Tilters as "Yankee Fans" vs. "Red Sox Fans."
My current favorite rivalry is the Chicken Triangle formed by the venerable Chik-Fil-A, Popeyes, Wendy's good natured fight for spicy chicken sandwich supremacy.
I have eaten at Wendy's and had their Chicken sandwich which is pretty good. Never had Chick-Fil-A or Popeyes. Chick-Fil-A has a restaurant in my metro area but they have a very small presence here in the west. My understanding is that Chick-Fil-A is just out of this world and better than Popeye's and certainly Wendy's.
There is only one Chik-fil-a near me. I ate there once. It was terrifying. It was staffed by dystopian youth leader well-programmed robots, who would reflexively express pleasure if you thanked them.
Yes, courtesy is pretty intimidating if you aren't used to it. You also have to consider Chick-Fil-A represents a Southern culture which in different parts of the country would seem foreign.
A fool and his money are good for business.
Gleevec
Posts: 341
Joined: Sun Mar 03, 2013 11:25 am

Re: Fidelity: When Zero does not mean free

Post by Gleevec »

I am quite fond of the Fidelity Zero International Fund. It’s 0.11% cheaper than the Vanguard equivalent, which is more than enough ER cushion that explanations about composition or tax efficiency wouldn’t mitigate such a large delta.

If Vanguard had an international fund with 0.01% and Fidelity with 0.12% (same 0.11% difference) everyone would be talking about how terrible Fidelity is, but because the shoe is on the other foot rather than talk about the real issues of expense ratios and minimums we are talking about esoteric non-client affecting minutiae from the prospectus and fried chicken
SevenBridgesRoad
Posts: 737
Joined: Sat Jul 07, 2018 12:14 am

Re: Fidelity: When Zero does not mean free

Post by SevenBridgesRoad »

Seriously.

This is what I love about this Forum. We can have a completely inane conversation about Fidelity verses Vanguard (Tastes great! Less filling!) at the same time we’re debating spicy chicken.
User avatar
whodidntante
Posts: 9242
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Fidelity: When Zero does not mean free

Post by whodidntante »

SevenBridgesRoad wrote: Mon Sep 02, 2019 9:43 pm Seriously.

This is what I love about this Forum. We can have a completely inane conversation about Fidelity verses Vanguard (Tastes great! Less filling!) at the same time we’re debating spicy chicken.
I feel like we need a dedicated chicken thread.
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

whodidntante wrote: Mon Sep 02, 2019 11:04 pm
SevenBridgesRoad wrote: Mon Sep 02, 2019 9:43 pm Seriously.

This is what I love about this Forum. We can have a completely inane conversation about Fidelity verses Vanguard (Tastes great! Less filling!) at the same time we’re debating spicy chicken.
I feel like we need a dedicated chicken thread.
Well okay then. Vanguard vs. Fidelity. Let the pillow fight begin!
A fool and his money are good for business.
TheEleven
Posts: 90
Joined: Thu Jul 04, 2019 11:04 pm

Re: Fidelity: When Zero does not mean free

Post by TheEleven »

I don't know about y'all but I am not sleeping or eating (any kind of chicken!) until we get to the bottom of this.
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

And for the record, I'm in agreement with those who argue that brokerage commissions should be required to be included in a fund's expense ratio. But we should know a) that that cost is very small (rounds down to 0.00% for an index fund) and that the marginal cost of the soft dollar arrangement is even smaller.
Perhaps those small transaction costs are attained once securities lending revenue is included to offset transaction costs? I get much higher percentages when I’ve attempted to calculate it from the annual or semi-annual reports.

Mutual fund companies thrive on avoiding transparency. This is not a benevolent industry.
Risk is not a guarantor of return.
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 6:18 pm

Re: Fidelity: When Zero does not mean free

Post by Phineas J. Whoopee »

usagi wrote: Mon Sep 02, 2019 3:22 am
whodidntante wrote: Mon Sep 02, 2019 1:29 am ... Vanguard cult....
Ain't that the truth.
Ain't. Bogleheads do not insist everybody become a Vanguard customer, whether directly, or indirectly via a fund or ETF held elsewhere. Vanguard simply implements index funds well, that's all. Others do too.

If we're a cult, what is the ordinary, conventional, unsurprising philosophy that isn't a cult?

PJW
User avatar
nisiprius
Advisory Board
Posts: 42197
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Fidelity: When Zero does not mean free

Post by nisiprius »

As cults go, we're doing a pretty punk job of it.

Three-fund portfolio: other than Vanguard, Boglehead-style:

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

I could easily see this product simply being a loss leader, without any "tricks" to the consumer.

Look at this way, Vanguard charges .03% expense ratio for their total market ETF: VTI. So for every $1,000,000 in assets, there's $300 in fees.

It's WAY cheaper than television advertising or other marketing.
VTI/VTSAX would not have a 3 bp ER if it were just a fund of $1M or even $1B.

But why pay for advertising when you can make money off it?
It's performing perfectly so far. Beats VTSAX -- by one bp.
If two index funds for the same asset class achieve the same return, an investor should prefer the one that took less security lending risk and/or the one that tracks an index managed by a 3rd party.

Based on the text in the SAI, these funds flunk my due diligence tests for choosing an investment, regardless of how they actually are being managed with respect to costs.
Risk is not a guarantor of return.
elainet7
Posts: 387
Joined: Sat Dec 08, 2018 1:52 pm

Re: Fidelity: When Zero does not mean free

Post by elainet7 »

Saw that some funds charge a MANAGEMENT FEE which is separate from the expense ratio
The fund was TRowe Health Sciences
User avatar
SmileyFace
Posts: 6001
Joined: Wed Feb 19, 2014 10:11 am

Re: Fidelity: When Zero does not mean free

Post by SmileyFace »

Face the fact: Fidelity won the race-to-the-bottom-ER battle with the Zero funds.
The question is - does it matter with index fund ERs being so low. As Nisiprius points out - the differences are currently in the noise. Tax efficiency has been the other speculation on where you will lose with Fidelity (so if you believe some of those arguments perhaps using Vanguard for taxable and Fidelity for tax-advantaged is the way to go - this is where I ended up but not for this reason).
Only time will tell whether or not one is better off going with the Fidelity Zero funds or something else. But, given a lot of the other claims I have read in various posts are merely speculation - the only thing I know for a fact is that Fidelity now has the lowest ERs so why wouldn't I go with them (especially in tax-advantaged accounts).
usagi
Posts: 273
Joined: Wed Jun 05, 2019 1:08 am

Re: Fidelity: When Zero does not mean free

Post by usagi »

nedsaid wrote: Mon Sep 02, 2019 6:59 pm
There are pretty good restaurants that serve chicken sandwiches but they are just an option on the menu and not a specialty.


Charlies Grilled Subs(now Charlies Philly Steaks) has a very, very good Buffalo Chicken sub. Given what it is, it is a slightly healthier choice overall. I like Charlies very much as a concept (it is one of the two franchised sub concepts I would recommend to a small subset of my clientele).
My guess is that Applebee's would have a pretty good sandwich, they morphed over the years from being a family restaurant similar to Denny's to being more like a sports bar. Their food is pretty darned good.
Applebees is a very fascinating business. They made a lot of intelligent business decisions but ultimately took a beating from relying on a few under capitalized large MUFs in the mid-west who failed during the great recession. I am not sure what their current strategy but the intriguing previous one was more or less a full service version of Chilis x Casey's x Chik-Fil-A. By that a mean they shifted to a rural focus offering a urban food & drink service in a family friendly environment where they would be the only big chain offering in town.

But back to chicken. Applebees (at least at one time) had among the best chicken wings out there. They were big meaty portions, prepared on par with Buffalo Wild Wings with excellent sauces and handily trouncing wing concepts like WingStop (years ago (pre 2008)one of my clients paid me to take a panel around and taste test chicken wings - talk about a yummy gig).

Best of all, during the great recession, they tried to drive late night traffic by offering 1/2 price appetizers after 9 or 10 pm. It was a pretty good deal and I would go their with my laptop and eat wings and write proposals until they closed. I wonder if they still do that? Seriously, at least at one time, they had great wings. Yep, need that chicken thread for sure.
stlutz
Posts: 5574
Joined: Fri Jan 02, 2009 1:08 am

Re: Fidelity: When Zero does not mean free

Post by stlutz »

Northern Flicker wrote: Tue Sep 03, 2019 12:55 am
And for the record, I'm in agreement with those who argue that brokerage commissions should be required to be included in a fund's expense ratio. But we should know a) that that cost is very small (rounds down to 0.00% for an index fund) and that the marginal cost of the soft dollar arrangement is even smaller.
Perhaps those small transaction costs are attained once securities lending revenue is included to offset transaction costs? I get much higher percentages when I’ve attempted to calculate it from the annual or semi-annual reports.

Mutual fund companies thrive on avoiding transparency. This is not a benevolent industry.
Brokerage commissions are broken out in the SAI, not the annual report. And securities lending income has nothing to do with it.

Vanguard Total Market reported $12.6M in commissions in 2018. It has $820B in AUM. That works out to .002%.

I'm sure if you are looking a high turnover fund, the commission amount would be much higher. That doesn't apply to Fidelity Zero Index funds.
UpperNwGuy
Posts: 4289
Joined: Sun Oct 08, 2017 7:16 pm

Re: Fidelity: When Zero does not mean free

Post by UpperNwGuy »

Northern Flicker wrote: Tue Sep 03, 2019 1:21 pm If two index funds for the same asset class achieve the same return, an investor should prefer the one that took less security lending risk and/or the one that tracks an index managed by a 3rd party.
Seriously? What percentage of the investor community do you think even know what security lending is? Or understand the concept of a third party index? Most investors barely understand expense ratios and how to tell when one fund is outperforming another.
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
A fool and his money are good for business.
Alchemist
Posts: 568
Joined: Sat Aug 30, 2014 6:35 am

Re: Fidelity: When Zero does not mean free

Post by Alchemist »

nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
Fidelity is already ahead in the culinary department. On my one visit to a Fidelity branch to fill out some forms they had coffee, tea, bottled water, soft drinks, and even cookies available for free. No chicken but if you let them know that would get more defections from Vanguard they might start stocking sandwiches too :wink:

Really this thread is a bit silly. I use FSKAX in my Roth IRA instead of the ZERO's because I appreciate the good service I get at Fidelity and just feel better giving them my 0.02% ER as compensation. Below 10 bps cost really stops mattering anyway. I do not fret about the 3 bps I pay for ITOT and VTI in my taxable account.
TropikThunder
Posts: 2587
Joined: Sun Apr 03, 2016 5:41 pm

Re: Fidelity: When Zero does not mean free

Post by TropikThunder »

If FZROX's "true" ER was like 35 bp, but they covered that entire cost with securities lending, soft dollar arrangements, brokerage commissions, selling advertising space on their jerseys (sorry, watching soccer at work :P ), etc so that the end cost to me, the poor little investor is zero, should I care at all? I mean, to me it IS free.
User avatar
willthrill81
Posts: 21364
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Fidelity: When Zero does not mean free

Post by willthrill81 »

Based on the data we've seen comparing FZROX's performance to that of VTSAX, I just don't see a strong argument yet for any investor to switch from the latter to the former, despite the lower ER. The effective difference in the ERs is nearly microscopic and can easily be overwhelmed by several other factors, such as the difference in indexes being tracked, tracking error, securities lending, etc.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

Alchemist wrote: Tue Sep 03, 2019 11:01 pm
nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
Fidelity is already ahead in the culinary department. On my one visit to a Fidelity branch to fill out some forms they had coffee, tea, bottled water, soft drinks, and even cookies available for free. No chicken but if you let them know that would get more defections from Vanguard they might start stocking sandwiches too :wink:

Really this thread is a bit silly. I use FSKAX in my Roth IRA instead of the ZERO's because I appreciate the good service I get at Fidelity and just feel better giving them my 0.02% ER as compensation. Below 10 bps cost really stops mattering anyway. I do not fret about the 3 bps I pay for ITOT and VTI in my taxable account.
Silliness aside, I have been more and more impressed with the Fidelity Zero funds as I have learned more about them. As another poster mentioned, Fidelity has gotten a lot from this, if nothing else buzz and lots of advertising. Shoot, they even got a Vanguard and John Bogle forum doing a lot of free advertising for a Fidelity product.
A fool and his money are good for business.
User avatar
dogagility
Posts: 1135
Joined: Fri Feb 24, 2017 6:41 am

Re: Fidelity: When Zero does not mean free

Post by dogagility »

usagi wrote: Tue Sep 03, 2019 4:14 pm But back to chicken. Applebees (at least at one time) had among the best chicken wings out there. They were big meaty portions, prepared on par with Buffalo Wild Wings with excellent sauces and handily trouncing wing concepts like WingStop (years ago (pre 2008)one of my clients paid me to take a panel around and taste test chicken wings - talk about a yummy gig).
Oh yeah, now the thread gets interesting! :happy I find most chain wings to be a soggy, fatty mess. Give me the local brewpub wings where the smoke penetrates into the meat and is covered by a crispy, spiced skin any day.
usagi wrote: Tue Sep 03, 2019 4:14 pm Best of all, during the great recession, they tried to drive late night traffic by offering 1/2 price appetizers after 9 or 10 pm. It was a pretty good deal and I would go their with my laptop and eat wings and write proposals until they closed. I wonder if they still do that? Seriously, at least at one time, they had great wings. Yep, need that chicken thread for sure.
My daughter would go to the Applebees night appetizer extravaganza with her driving age friends when she was in high school. I figured this was a loss-leader, just like FZROX (circled back to the thread topic!). Hook 'em while they are young! (Appelbees has long since lost me as a customer.)
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
User avatar
firebirdparts
Posts: 1880
Joined: Thu Jun 13, 2019 4:21 pm

Re: Fidelity: When Zero does not mean free

Post by firebirdparts »

nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
I would totally leave Fidelity if that happened.
A fool and your money are soon partners
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

firebirdparts wrote: Wed Sep 04, 2019 7:51 am
nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
I would totally leave Fidelity if that happened.
I was joking.
A fool and his money are good for business.
mervinj7
Posts: 1566
Joined: Thu Mar 27, 2014 3:10 pm

Re: Fidelity: When Zero does not mean free

Post by mervinj7 »

nedsaid wrote: Wed Sep 04, 2019 12:04 pm
firebirdparts wrote: Wed Sep 04, 2019 7:51 am
nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
I would totally leave Fidelity if that happened.
I was joking.
I think the reason this thread has gotten off-track is that even after 80 posts, there hasn't been a single quantifiable post why "Zero doesn't mean free". Just lots of speculation and gut (hence the chicken sandwiches) feelings (which by the way I still think is a valid reason not to do something).
lukestuckenhymer
Posts: 254
Joined: Wed May 30, 2018 11:53 am

Re: Fidelity: When Zero does not mean free

Post by lukestuckenhymer »

Chasing four basis points is silly. Tracking error alone will put both Fidelity and Vanguard funds in a nearly identical position after 3, 5 or 10 years.

However, if you're buying in a taxable account, the choice is still very clear: Vanguard for tax efficiency.
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

I think the reason this thread has gotten off-track is that even after 80 posts, there hasn't been a single quantifiable post why "Zero doesn't mean free". Just lots of speculation and gut (hence the chicken sandwiches) feelings (which by the way I still think is a valid reason not to do something).
Maybe not quantified but the use of soft-dollar arrangements with brokers does mean that the fund is paying administrative costs through padded commission fees to get the add-on services provided. This happens with almost all mutual funds today, not just Fidelity Zero funds, but that the zero funds are not completely free is really not debatable.

What seems to be unique about the Fidelity Zero funds is a clause in the SAI allowing the fund to pay these costs for other funds. I of course have not checked every available mutual fund to look for these clauses so it may not be unique to Fidelity or the zero funds. I have no idea if or how these are used, but the onus is really on Fidelity to explain its purpose. I cannot think of any usage of it that is aligned with shareholder interests.
Last edited by Northern Flicker on Wed Sep 04, 2019 1:51 pm, edited 2 times in total.
Risk is not a guarantor of return.
Jack FFR1846
Posts: 12797
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Fidelity: When Zero does not mean free

Post by Jack FFR1846 »

I'll give you that Wendys spicy chicken sandwich is good. It's also very cheap, so I'd expect it would be a BH favorite. Near me, there's a chic fil a right next to Wendys. I'm too scared to go in there, though.

Anyways, the "real" chicken place is Kentucky Fried Chicken. Even knowing that Sanders sold off the franchise in the 60's and once shot a competing gas station owner over them painting his signs over, that chicken is the best. I buy gas at Shell pretty often as well. (Sanders owned a Shell station, which he sold chicken from to help boost business).
Bogle: Smart Beta is stupid
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

mervinj7 wrote: Wed Sep 04, 2019 1:26 pm
nedsaid wrote: Wed Sep 04, 2019 12:04 pm
firebirdparts wrote: Wed Sep 04, 2019 7:51 am
nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
I would totally leave Fidelity if that happened.
I was joking.
I think the reason this thread has gotten off-track is that even after 80 posts, there hasn't been a single quantifiable post why "Zero doesn't mean free". Just lots of speculation and gut (hence the chicken sandwiches) feelings (which by the way I still think is a valid reason not to do something).
In the factor threads, I have often said that close enough is close enough and good enough is good enough as it is nearly impossible to determine in advance an optimal portfolio. In the case of the Zero funds, I would say free enough is free enough. Seeing that the differences in performance between the Fidelity Zero funds and similar index funds that charge very small fees, I will take their word for it.

I suppose if you really wanted a pillow fight to break out on the forum, we would argue whether the Fidelity employee cafeteria or the Vanguard employee cafeteria serves the best chicken sandwiches.
A fool and his money are good for business.
Iridium
Posts: 730
Joined: Thu May 19, 2016 10:49 am

Re: Fidelity: When Zero does not mean free

Post by Iridium »

Northern Flicker wrote: Wed Sep 04, 2019 1:39 pm What seems to be unique about the Fidelity Zero funds is a clause in the SAI allowing the fund to pay these costs for other funds. I of course have not checked every available mutual fund to look for these clauses so it may not be unique to Fidelity or the zero funds. I have no idea if or how these are used, but the onus is really on Fidelity to explain its purpose. I cannot think of any usage of it that is aligned with shareholder interests.
Vanguard allows it.

https://personal.vanguard.com/pub/Pdf/sai040.pdf (Page B-48)
The research services provided by brokers through which a Fund effects securities transactions may be used by the advisor
in servicing all of its accounts, and some of the services may not be used by the advisor in connection with the Fund.
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

Also unacceptable.
Risk is not a guarantor of return.
Iridium
Posts: 730
Joined: Thu May 19, 2016 10:49 am

Re: Fidelity: When Zero does not mean free

Post by Iridium »

Northern Flicker wrote: Wed Sep 04, 2019 7:32 pm Also unacceptable.
Are there any funds that you consider to be acceptable? I have worked on a program in the past where information had to be compartmentalized, such that information from one side of the fence couldn't inform decisions on the other side of the fence. I very much doubt any company would voluntarily put itself though that.
User avatar
LadyGeek
Site Admin
Posts: 67173
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia
Contact:

Re: Fidelity: When Zero does not mean free

Post by LadyGeek »

Please stay on topic, piece of cake.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
stlutz
Posts: 5574
Joined: Fri Jan 02, 2009 1:08 am

Re: Fidelity: When Zero does not mean free

Post by stlutz »

I can't really get excited about chicken sandwiches, but cake is a different story. Following this thread now...
Alchemist
Posts: 568
Joined: Sat Aug 30, 2014 6:35 am

Re: Fidelity: When Zero does not mean free

Post by Alchemist »

Northern Flicker wrote: Wed Sep 04, 2019 7:32 pm Also unacceptable.
So then I guess its just direct indexing that would meet this due diligence test?

On a more important topic....what kind of cake we talking here? Chocolate? Angel Food? Maybe even Red Velvet?
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

Iridium wrote: Wed Sep 04, 2019 8:12 pm
Northern Flicker wrote: Wed Sep 04, 2019 7:32 pm Also unacceptable.
Are there any funds that you consider to be acceptable? I have worked on a program in the past where information had to be compartmentalized, such that information from one side of the fence couldn't inform decisions on the other side of the fence. I very much doubt any company would voluntarily put itself though that.
I don't recall seeing that language in the Vanguard SAI last time I read their description of soft-dollar arrangements with brokers, so this is not welcome news.

It appears that some degree of loss of transparency may be a feature of the race to the bottom. Nonetheless my main point that the zero funds are not free, as indicated in the subject still stands.
Risk is not a guarantor of return.
User avatar
nedsaid
Posts: 13929
Joined: Fri Nov 23, 2012 12:33 pm

Re: Fidelity: When Zero does not mean free

Post by nedsaid »

Free enough is free enough. The Fidelity Zero funds are perfectly good investments. Nothing is perfect in this world.
A fool and his money are good for business.
HMdocinPA
Posts: 27
Joined: Tue Oct 23, 2018 5:07 pm

Re: Fidelity: When Zero does not mean free

Post by HMdocinPA »

My Roth IRA and wife’s Roth IRA are both in Fidelity Zero funds, and next year when I move my HSA to fidelity that will be in zero funds as well. I don’t see any downside at this point, and free to me is great.
Big Dog
Posts: 2092
Joined: Mon Sep 07, 2015 4:12 pm

Re: Fidelity: When Zero does not mean free

Post by Big Dog »

Alchemist wrote: Tue Sep 03, 2019 11:01 pm
nedsaid wrote: Tue Sep 03, 2019 7:50 pm Well, I guess the moral of this thread is that Vanguard needs to offer delicious chicken sandwiches along with its index funds in order to compete with Fidelity. Maybe Great Grandma Bogle had a secret sauce to put on the chicken. I don't know how we got so off track but it was fun.
Fidelity is already ahead in the culinary department. On my one visit to a Fidelity branch to fill out some forms they had coffee, tea, bottled water, soft drinks, and even cookies available for free. No chicken but if you let them know that would get more defections from Vanguard they might start stocking sandwiches too :wink:

I just received an e-mail from the local Fidelity Rep inviting me to a luncheon at a top Fish restaurant in town. I'll have to ask if I could get chicken instead. :twisted:
Nummerkins
Posts: 493
Joined: Tue Jun 01, 2010 4:41 pm

Re: Fidelity: When Zero does not mean free

Post by Nummerkins »

I just sold all the VTI I have in my Roth and bought FZROX. Sure will be nice to have that extra piddly amount of pocket change :)

No one has been able to substantiate yet how the funds are not free to me, the customer. I also dont care if another fund pays for it -- other customers pay for my credit card rewards.
Today's high is tomorrow's low.
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

Nummerkins wrote: Thu Sep 05, 2019 9:01 pm I just sold all the VTI I have in my Roth and bought FZROX. Sure will be nice to have that extra piddly amount of pocket change :)

No one has been able to substantiate yet how the funds are not free to me, the customer. I also dont care if another fund pays for it -- other customers pay for my credit card rewards.
Such a flow between funds would likely be happening in the other direction. That mutual funds hide expenses in soft-dollar arrangements with brokers so they don't have to account for them in the expense ratio is nothing new.
Risk is not a guarantor of return.
User avatar
SmileyFace
Posts: 6001
Joined: Wed Feb 19, 2014 10:11 am

Re: Fidelity: When Zero does not mean free

Post by SmileyFace »

So how do we come to the conclusion in the titles post especially as compared to all other mutual funds?

As far as I see - these funds are free to me (yet to see someone proove otherwise) and the post title is fake news.
HMdocinPA
Posts: 27
Joined: Tue Oct 23, 2018 5:07 pm

Re: Fidelity: When Zero does not mean free

Post by HMdocinPA »

DaftInvestor wrote: Fri Sep 06, 2019 6:58 am So how do we come to the conclusion in the titles post especially as compared to all other mutual funds?

As far as I see - these funds are free to me (yet to see someone proove otherwise) and the post title is fake news.
I agree. Sounds more like OP has an axe to grind with Fidelity rather than providing some new insight.
Topic Author
Northern Flicker
Posts: 6608
Joined: Fri Apr 10, 2015 12:29 am

Re: Fidelity: When Zero does not mean free

Post by Northern Flicker »

HMdocinPA wrote: Fri Sep 06, 2019 8:11 am
DaftInvestor wrote: Fri Sep 06, 2019 6:58 am So how do we come to the conclusion in the titles post especially as compared to all other mutual funds?

As far as I see - these funds are free to me (yet to see someone proove otherwise) and the post title is fake news.
I agree. Sounds more like OP has an axe to grind with Fidelity rather than providing some new insight.
Axe to grind with opacity, not Fidelity.
Risk is not a guarantor of return.
User avatar
SmileyFace
Posts: 6001
Joined: Wed Feb 19, 2014 10:11 am

Re: Fidelity: When Zero does not mean free

Post by SmileyFace »

Northern Flicker wrote: Fri Sep 06, 2019 12:54 pm
HMdocinPA wrote: Fri Sep 06, 2019 8:11 am
DaftInvestor wrote: Fri Sep 06, 2019 6:58 am So how do we come to the conclusion in the titles post especially as compared to all other mutual funds?

As far as I see - these funds are free to me (yet to see someone proove otherwise) and the post title is fake news.
I agree. Sounds more like OP has an axe to grind with Fidelity rather than providing some new insight.
Axe to grind with opacity, not Fidelity.
I am still waiting to hear what isn't opaque??
I've read dozens of different threads here on Bogleheads since Fidelity opened these funds - probably over a hundred pages total- and all I've heard so far is a lot of speculation. Meanwhile the funds do as well as others of the same type and appear to have no tracking error. Please enlighten us on what is "Not free" about these funds (outside normal industry practice that all such funds follow).
Post Reply