PLANADVISER - March/April 2018 - 17

Fidelity Plays Hardball
The firm will charge new sponsor clients that choose Vanguard products
FIDELITY announced that it would
soon begin charging a 0.05% fee on
assets invested through its institutional
retirement plan recordkeeping
platform into Vanguard products,
including that firm's popular suite of
index-based target-date funds (TDFs)
and collective trusts.
The announcement grabbed attention
for obvious reasons, including
that Fidelity and Vanguard are two of
the largest-volume providers of retirement
plan recordkeeping and investment
products for defined contribution
(DC) retirement plans in the U.S.
It was also revealed by Vanguard
that this fee was announced first
to journalists and only afterward
to Vanguard-catching the firm
" completely by surprise, " as a representative
candidly admitted.
Fidelity has since confirmed that
the nominal fee " applies only to new
clients, " but, given the sheer volume of
business conducted by the two companies
in a given year, the fee change
could result in a significant amount of
new revenue for Fidelity.
Fidelity is still
rolling out the fee on its recordkeeping
platform, said a company representative,
so clients have had little time to
react. However, the salespeople may
TALKING POINT
Dismal Outlook for Millennials
67%
Fear they
will outlive
their savings
66%
Have
no retirement
savings
47%
Think they will
be unable to
retire when they
would like
Source: National Institute on Retirement Security
soon have more information to share,
the representative said.
In first announcing the fee, a Fidelity
spokeswoman indicated that working
with Vanguard " imposes unique operational
requirements
extra
costs for
that
generate
Fidelity. " She also
stressed, " [We are] not removing any
fund families from our platform, but
we are requiring that all fund families
compensate us for our services in order
to remain in good standing.
" Fidelity requires all fund families
to compensate us for the shareholder
and administrative services we
provide on their behalf, " she continued.
" A small number of fund families have
not compensated Fidelity for certain
services, and this pricing change is
designed to address that disparity,
with the intention of providing fairness
across all of our business relationships. "
Specific to Vanguard and leading to
in the process of
excess uncompensated costs, Fidelity
says, is that Vanguard requires that
plan-level trading activity and largetrade
notifications be submitted by 3
p.m. EST, or an hour prior to market
close. Fidelity says this has created
increased complexity for its platform
and its plan sponsor clients in that
" we have had to implement an earlier
daily cut-off process, ensuring the
trade notifications will be analyzed,
reviewed and submitted to Vanguard-
minimizing any trades being rejected. "
While Vanguard may have been
among the " small number " of fund
families that have reportedly not
compensated Fidelity for shareholder
administration services, any
change in fees charged on Vanguard
funds is bound to affect a significant
number of plan sponsors and participants.
As shown by the 2017 PLANSPONSOR
Target-Date Fund Buyer's
Guide, between Vanguard's brands of
TDFs and collective trusts, that firm
is the largest-volume provider of TDF
products to U.S. defined contribution
plans. Fidelity, through its various TDF
product lines, also controls a substantial
portion of the market, besides its
sizable recordkeeping business.
More information on any plan
sponsor impact will naturally become
available as the fee change is rolled
out. The move by Fidelity will play
out against the backdrop of a broader
ongoing sea change in the way retirement
plan recordkeepers and investment
product providers work with
and compensate one another-and
in the extent to which clients receive
a granular view of all of the fees they
ultimately pay. -John Manganaro
40%
Say eligibility
requirements
exclude
them from a
retirement plan
34%
Participate
in a retirement
plan
21%
Are worried
about their
retirement
security
planadviser.com march-april 2018 | 17
http://www.planadviser.com
PLANADVISER - March/April 2018

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