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Jason Zweig: Why Mutual Funds Should Pay Investors For Loyalty
In 2000, fund giant Vanguard Group introduced what it calls its Admiral class of shares as a way of rewarding loyal investors. Shareholders who held $150,000 for at least three years or $50,000 for at least 10 years were bumped up into the Admiral class by Vanguard. That gave them an immediate reward of annual fees that were as much as one-third lower than normal.
Today, $1.1 trillion, or fully 36% of Vanguard’s total assets, is in Admiral shares. As the firm’s assets have grown, the Admiral requirements have fallen: Anyone with at least $10,000 in an index fund or $50,000 in an actively managed fund qualifies, regardless of tenure. Fidelity Investments also offers shares with lower expenses to investors who keep a minimum of $10,000 in a fund.
You might think many other mutual-fund companies would have followed suit. But Admiral never aroused any “chatter or controversy or envy or emulation,” says a Vanguard executive who was involved in the launch. Several fund-industry experts say they aren’t aware of other firms that have done anything similar.
That is a good way to award your investors. Also their fees continue to drop as the asset grow. How many fund family can honestly give you that? No wonder investors are moving their asset elsewhere.
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