Fund Investors Brace As Fidelity Boosts Fees
OWNING a mutual fund is about to get more expensive for hundreds of thousands of ''smaller'' investors.
On Nov. 10, Boston-based Fidelity Investments, with more than $500 billion in assets, will take a computerized ''snapshot'' of all its 9 million retail (consumer) accounts. Accounts less than $2,500 will be assessed a $12 annual maintenance fee. The maximum charge, for an investor with multiple accounts, will be $60. The money will be withdrawn from fund balances on Nov. 17.
While Fidelity is not the first mutual-fund company to impose special charges on smaller accounts, it is clearly the most important to do so. As the largest US mutual-fund company, Fidelity's marketing practices are followed closely by competitors. Smaller companies may be tempted to impose similar fees, experts say.
Fidelity argues that the new charge is necessary, given high operating costs within the industry. ''This seems like a natural way to better allocate [maintenance] costs, so that higher-cost accounts will pay a fairer share'' of operating expenses, says Teri Kilduff, a Fidelity spokeswoman.
Fidelity originally announced its intention to assess the charge in January. At that time, it was estimated that about 19 percent of Fidelity's retail accounts would be subject to the charges. But a number of fund holders have subsequently consolidated their accounts to avoid charges, Ms. Kilduff says. (Fidelity has a total of 24.8 million customer accounts, but the majority are pension or institutional accounts, which are not subject to the new charge.)
Before this year, Fidelity imposed a $10 maintenance charge on retirement accounts for individuals if the balance fell below $5,000. But those accounts will now come under the new $12 charge as well, lowering the balance requirement by half.
There are two ways of getting a waiver on the $12 charge: If account holders have an aggregate balance in all their accounts of $50,000 or more; or if the customer is participating in a systematic investment plan involving regular payments.
''What all this means is that mutual funds are getting [to be] like banks,'' says one financial analyst here. Many banks seek to discourage small savings accounts, and assess service charges when account balances slip below prescribed levels.
Imposing fees on smaller amounts has not been that common in the mutual-fund industry. But a few companies, including John Hancock Funds and Charles Schwab Corp., do so. John Hancock assesses the charge only on balances that fall below $1,000. ''You could always shift funds from another account [into the delinquent account] to avoid the charge,'' says a Hancock spokesman. Imposing such charges is widespread throughout the brokerage industry. Investment houses, as a rule, dislike small accounts.
''In the last few years, higher levels of services have been required throughout the mutual-fund industry,'' says John Teall, a spokesman for Lipper Analytical Services Inc., a financial-services firm.
Those new services, Mr. Teall says, include: allowing the switching of funds between accounts in a family of funds, such as at Fidelity; special 800-line telephone service numbers; 24-hour-a-day customer assistance; and more pamphlets and other background material on investments. Moreover, he says, training and retraining customer-service representatives and other office staff has become more costly.