Fidelity Makes Index Fund Fee Cuts Permanent

Fidelity Investments announced Tuesday it is making the fee reductions on five of its index funds to 10 basis points, introduced last August, permanent. The reduction was the most dramatic on the Spartan International Index Fund, which had cost 47 basis points. But even as Fidelity touted the fee reductions as "A Perfect 10!" in advertisements, they included fine print saying, "This arrangement may be discontinued at any time."

The decision to make the reduction permanent comes on the heels of a barb by Jack Brennan, Vanguard chairman, that Fidelity had introduced the reductions as a mere " opportunistic marketing ploy" to compete with Vanguard's famously low-cost index funds and the growing popularity of even cheaper exchange-traded funds.

"Fee waivers are like a cents-off coupon," Brennan wrote in a shareholder notice. "The couponing lasts for as long or as short a period as the marketing folk think it's working."

Fidelity Personal Investments President Jeff Carney issued a statement saying that when Fidelity first lowered the fees, its intention all along was to make it a "long-term initiative."

"Fidelity is firmly committed, in no uncertain terms, to providing investors with high-quality index funds that are not only among the lowest-cost in the market," he continued, "but also contractually bound to stay that way."

Since it lowered the fees on the five index funds, they have attracted an additional $2 billion in net new assets, according to Fidelity.