PLANSPONSOR - February/March 2018 - 12

Upfront
Fidelity Plays Hardball with Vanguard
BACK in January, Fidelity made an
announcement that it would begin
charging a 0.05% fee on assets invested
through its institutional retirement plan
recordkeeping platform into Vanguard
products, including the firm's popular
suite of index-based target-date funds
(TDFs) and collective trusts. A Fidelity
spokeswoman indicated that working with
Vanguard " imposes unique operational
requirements that generate extra costs for
Fidelity. " She also stressed that Fidelity " is
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. "
Specific to Vanguard and leading
to excess uncompensated costs, Fidelity
says, is that Vanguard requires that planlevel
trading activity and large trade-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. "
The announcement received attention
as 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. Fidelity has
since confirmed that the fee " applies
only to new clients, " but, given the sheer
volume of business conducted by the
two firms in a given year, the fee change
could result in a significant amount of
new revenue for Fidelity.
Vanguard's candid admission that it
only learned of this new fee through media
reports, including PLANSPONSOR's,
is more than a little revealing of how
large retirement plan providers craft and
execute their competitive strategies-and
their marketing approaches.
Asked to discuss these developments,
a Vanguard spokeswoman suggested that
a few things have been misrepresented in
media reports. " I have seen the statement
that Vanguard does not pay third-party
providers a distribution fee, but there is
no context for what this means, " Laura
Edling said. " Vanguard has a unique
structure, by which I mean we are owned
by our funds and, in turn, by our clients
who invest in these funds. Because of
this, we feel we cannot charge that sort
of distribution fee to our funds due to a
potential conflict of interest. If we were to
pick and choose which platforms we paid
in this way, it would potentially put all our
TALKING POINTS
The Importance of Benefits
When Changing Jobs
When choosing a new job or considering whether to stay in
a current one, 60% of workers report that health insurance
is extremely important to their decision, compared with 42%
who say a retirement savings plan is extremely important.
n Health insurance n Retirement savings plan
60%
42%
31%
21%
11%
Extremely
important
Very
important
Somewhat
important
19%
3% 5% 3% 3%
Not too
important
Not at all
important
Source: Employee Benefits Research Institute and Greenwald & Associates, 2017 Health
and Voluntary Workplace Benefits Survey
investors at a disadvantage. It's a subtle
point, but it's important. " Another way
to state the concern is that, in charging
distribution fees to its funds, Vanguard
essentially would be charging and paying
itself for distribution. Edling went on to
question how Fidelity came to the 5-basispoint
fee figure, even supposing that it is
losing some amount of revenue based on
the way Vanguard structures its business.
Both Vanguard and Fidelity agree that
the development of fees and discussion of
provider payments is a positive thing for
clients and the industry. But any change in
fees charged on Vanguard funds is bound
to affect a significant number of plan sponsors
and participants. -John Manganaro
12 PLANSPONSOR.com February-March 2018
http://www.PLANSPONSOR.com
PLANSPONSOR - February/March 2018

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