Odds that Fidelity starts charging an ER for their Zero funds in the future?

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yarnandthread
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Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by yarnandthread » Tue Jan 07, 2020 4:09 pm

What do you think are the odds that Fidelity will decide later on to start charging an expense ratio for their Zero funds given that they are a loss leader for Fidelity?

It certainly wouldn't be pleasant for people putting money into their funds and later get "trapped" because of capital gains.

DB2
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by DB2 » Tue Jan 07, 2020 4:12 pm

Odds are very slim in my opinion. These kind of indexes are so cheap to run and the press would be a huge negative for them if they were to start charging.

lukestuckenhymer
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by lukestuckenhymer » Tue Jan 07, 2020 4:19 pm

Improbable, but it's always a possibility, just like it's a possibility that a credit card that offers extremely generous, loss-leading cash back (5%) could scale back as well.

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RootSki
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by RootSki » Tue Jan 07, 2020 4:30 pm

I think it's more probable for Fidelity to raise ER on other funds before doing so with the Zero Funds. They have plenty of high cost funds already.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by veggivet » Tue Jan 07, 2020 4:39 pm

Slim to none, with none being more likely.
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anil686
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by anil686 » Tue Jan 07, 2020 4:40 pm

I would say zero (would that be a pun?). Seriously, they get more mileage from the marketing aspect of it than if the ER was set to some actual level which would also be pretty low (maybe a few bp). JMO though...

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Iridium » Tue Jan 07, 2020 5:07 pm

If Fidelity started charging 4 basis points for their total market fund (a competitive, but certainly not market leading expense ratio), it would bring in all of $2 million/year. That is a rounding error to Fidelity and is probably way less than what they are spending advertising the funds. As loss leaders go, this one is dirt cheap for Fidelity. Except for one ENORMOUS problem: the zeros might encourage investors to put money in index funds vs active funds. If anything kills Fidelity, it will be too many investors pulling money from their active funds. I would think Fidelity is more likely to pull out of indexing altogether rather then try to screw with the Zero funds. Not that I consider either to be likely.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by UpsetRaptor » Tue Jan 07, 2020 6:06 pm

RootSki wrote:
Tue Jan 07, 2020 4:30 pm
I think it's more probable for Fidelity to raise ER on other funds before doing so with the Zero Funds. They have plenty of high cost funds already.
+1

They know their Zero investors tend to be highly cost-sensitive, and their other investors tend to be not quite so much.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by averagedude » Tue Jan 07, 2020 6:14 pm

Highly unlikely. A loss leader can actually be profitable for companies. Most investors that use these funds will eventually use profitable investment products that they offer. Could be wrong, but I believe the downside to using these funds is they are not transferrable. This could be a big deal for some folks who want to to consolidate all of their taxable assets to a different brokerage firm.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by CppCoder » Tue Jan 07, 2020 6:16 pm

Zero. FSKAX, the Total U.S. Market fund they "charge" for has an ER of 0.015%. If they were to ever want to charge a fee for their zero U.S. fund, FZROX, they'd probably just merge it with FSKAX and "disappear" the zero fund. A more interesting question, in my opinion, is will they ever get rid of FSKAX and merge it into FZROX? I doubt they'd drop the ER of FSKAX to zero and keep both.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by aristotelian » Tue Jan 07, 2020 6:17 pm

I am sure people said the same thing about Vanguard index funds when they were first introduced. And yet prices have continued to drop. I think the Zero funds would be dissolved before they charge fees. The zero fee is their raison d'etre.

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Phineas J. Whoopee
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Phineas J. Whoopee » Tue Jan 07, 2020 6:24 pm

I'm not sure marketing would like changing the brand name to Fidelity Somewhat More Than Zero Funds.
PJW

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2pedals
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by 2pedals » Tue Jan 07, 2020 6:30 pm

It would be more tax-efficient to place your money in an index ETFs rather than the zero mutual funds. The general rule is to use ETF in taxable and zero mutual funds in tax-deferred or non-taxable. I would be worried about the long-term tax inefficiencies of a Fidelity zero mutual fund in a taxable account before the concern of zero's turning into non-zeros.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by averagedude » Tue Jan 07, 2020 6:37 pm

Sounds crazy, but their just might be a day where a brokerage firm pays you to invest with them.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by abuss368 » Tue Jan 07, 2020 6:50 pm

Always a possibility.
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by TravelGeek » Tue Jan 07, 2020 6:54 pm

Phineas J. Whoopee wrote:
Tue Jan 07, 2020 6:24 pm
I'm not sure marketing would like changing the brand name to Fidelity Somewhat More Than Zero Funds.
PJW
Fidelity Zeroish funds?

Seems unlikely.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Ferdinand2014 » Tue Jan 07, 2020 7:10 pm

yarnandthread wrote:
Tue Jan 07, 2020 4:09 pm
What do you think are the odds that Fidelity will decide later on to start charging an expense ratio for their Zero funds given that they are a loss leader for Fidelity?

It certainly wouldn't be pleasant for people putting money into their funds and later get "trapped" because of capital gains.
Zero
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Nummerkins » Tue Jan 07, 2020 7:22 pm

None. While others fret about what might happen, I gladly enjoy the 0% expense ratio. Mr. Bogle was so successful in his fee lowering quest that a competitor beat Vanguard to zero. Well done.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by SlowMovingInvestor » Tue Jan 07, 2020 7:57 pm

Notable that Fido doesn't have a zero bond index fund. I wonder why not ?

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by abuss368 » Tue Jan 07, 2020 8:57 pm

All the Fidelity commercials for nothing?
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by UpperNwGuy » Tue Jan 07, 2020 9:03 pm

yarnandthread wrote:
Tue Jan 07, 2020 4:09 pm
What do you think are the odds that Fidelity will decide later on to start charging an expense ratio for their Zero funds given that they are a loss leader for Fidelity?

It certainly wouldn't be pleasant for people putting money into their funds and later get "trapped" because of capital gains.
Why are you asking this question? Haven't we discussed this topic over and over again during the last 16 months?

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by dru808 » Tue Jan 07, 2020 9:07 pm

SlowMovingInvestor wrote:
Tue Jan 07, 2020 7:57 pm
Notable that Fido doesn't have a zero bond index fund. I wonder why not ?
No need to at the moment, get people in with the zero fee large cap fund and they’ll gladly pay for an index bond fund, maybe sprinkle in a lil contrafund, a lil otc fund and some technology fund.
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by columbia » Tue Jan 07, 2020 9:09 pm

They don’t seem to have a problem with luring investors into their dizzying array of active funds, so no.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by CoastalWinds » Tue Jan 07, 2020 9:11 pm

They’re called ZERO funds. How goofy would it be to keep calling them this if they stop being such?

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by jhfenton » Tue Jan 07, 2020 9:16 pm

2pedals wrote:
Tue Jan 07, 2020 6:30 pm
It would be more tax-efficient to place your money in an index ETFs rather than the zero mutual funds. The general rule is to use ETF in taxable and zero mutual funds in tax-deferred or non-taxable. I would be worried about the long-term tax inefficiencies of a Fidelity zero mutual fund in a taxable account before the concern of zero's turning into non-zeros.
+1 The closure or price-increase risk shouldn't be a big concern, because you shouldn't own the ZERO funds in taxable anyway. They are fine funds for retirement accounts, but they are (1) non-portable and (2) not ETFs. You should stick with portable, tax-efficient ETFs in taxable accounts (or Vanguard mutual funds that are convertible to ETFs and share the tax-efficiency).

To be honest, I don't think that the closure risk or price-increase risk is significant. My biggest concern would be the non-portability. I would not want to be stuck with a significant non-portable asset, and the ZEROs are even less portable than most other mutual funds.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Northern Flicker » Tue Jan 07, 2020 9:21 pm

Because investors in the zero funds are likely focused on ER, if Fidelity wanted to increase revenue received from the funds, they likely would do so by mechanisms other than ER.
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by 3504PIR » Tue Jan 07, 2020 9:25 pm

A very interesting question given the implications down the road as you highlighted. Given that unpleasant thought however, I think it is only as likely as other top tier index funds raising theirs. A major index with fidelity, vanguard or blackrock are equally likely in my opinion. Other index funds with less invested would likely raise their fees before the big guys in my opinion.

Take comfort in the fact that fidelity is privately owned and makes billions through other activities as a further indicator that it won’t happen, or is less likely to happen than with other index providers.

Interesting question however, it made me think about the topic.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by whodidntante » Tue Jan 07, 2020 9:41 pm

I would say the odds of that happening are less than the odds of Vanguard increasing the ERs of their funds. Remember when they did that? No? Here's a reminder.
On average the expense ratios of Vanguard funds that have issued new prospectuses so far this year have gone up an average of 6.0 basis points, or hundredths of a percent, according to Morningstar data.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by SlowMovingInvestor » Tue Jan 07, 2020 9:43 pm

Although Fidelity is private, it generally reports some of it's revenue/profit numbers. I remember looking at those last year, and thinking 'Fidelity is insanely profitable'.

So yes, they could run these funds at 0 expense for marketing purposes without any problems.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by stan1 » Tue Jan 07, 2020 9:54 pm

I think they are in for the long term, but if they did change marketing strategy they could close the zero funds to new investors and limit new investment amounts for existing investors. A number of us have grandfathered marketing schemes from financial services companies such as cash back rewards. What I think is most likely is you'll get a harder press for more expensive funds, advisory services, and other higher margin products. Even Vanguard does that.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by slick_dealer_05 » Wed Jan 08, 2020 6:12 am

~ 15 years back when Schwab started decreasing the ER for their index funds to compete with Vanguard, several bogleheads mentioned on this forum that Schwab ER could increase later. Hasn't happened yet...

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by bondsr4me » Wed Jan 08, 2020 7:00 am

the odds that Fidelity starts charging ER is no great than Vanguard or Schwab increasing ER.

competition is great for us consumers....as long it is not at the expense of customer service...and there has been much talk about that...I need not say more about that.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Jack FFR1846 » Wed Jan 08, 2020 7:27 am

averagedude wrote:
Tue Jan 07, 2020 6:37 pm
Sounds crazy, but their just might be a day where a brokerage firm pays you to invest with them.
Already been done:

https://www.ft.com/content/3988cd86-757 ... 846537acab
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by Whakamole » Wed Jan 08, 2020 1:59 pm

Not something I'm concerned about.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by wolf359 » Wed Jan 08, 2020 2:05 pm

Probably nil. If it becomes a cost problem for them, they'll just close the fund and direct new money elsewhere. But even that's highly unlikely. They attract too much money by using this promotion to end it. They might even be thinking of the loss leader as part of their advertising budget.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by nisiprius » Wed Jan 08, 2020 2:12 pm

I don't believe they will.

Ages ago, there was a period of time when the Vanguard Total Stock Market Index Fund had an 0.10% ER, and the equivalent Fidelity fund (at that time, Fidelity Spartan Total Market Fund) has 0.20% ER gross, 0.10% net, and people were saying "it could go back to 0.20% at any time." It never did and they got the ER down to where there was no longer and gross/net difference.

By putting "zero" in the name of the fund, they have put an awfully firm and visible stake in the ground.

If maintaining that ER becomes a serious problem for them in the future, there are all kinds of ways they could solve it by discouraging investment in it. For example, Fidelity manages a lot of 401(k) plans--I don't know whether they include the Zero funds now!--but they could always, you know, drop FZROX in favor of FSKAX in Fidelity-managed plans. Or just not publicize their existence. Or putting a big red warning on all the web pages and literature reminding everyone that it's not portable...

Or liquidating or merging the fund, which amounts to the same thing but would still avoid their having a fund named "zero" with a nonzero ER.
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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by SlowMovingInvestor » Wed Jan 08, 2020 2:14 pm

nisiprius wrote:
Wed Jan 08, 2020 2:12 pm
For example, Fidelity manages a lot of 401(k) plans--I don't know whether they include the Zero funds now!--but they could always, you know, drop FZROX in favor of FSKAX in Fidelity-managed plans.
Pretty sure they don't, but if one has BrokerageLink, one might be able to get it outside the 401k.

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Re: Odds that Fidelity starts charging an ER for their Zero funds in the future?

Post by danielc » Wed Jan 08, 2020 8:10 pm

If the Zero funds become a problem, Fidelity can close them to new investors.

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