Vanguard cuts fund fees by lowering entry bar for low-cost Admiral share class

Vanguard cuts fees by expanding share class

BOSTON — Vanguard is expanding access to its lowest-cost mutual fund share class for individual investors, a move that will bring fee reductions to nearly 2 million clients of the nation’s largest fund company.

Vanguard said Wednesday it is reducing the minimum investment amount to qualify for its Admiral share class, which charges lower investment expenses than its Investor mutual fund shares.

The biggest cuts affect Vanguard’s index funds, which the company pioneered in the late 1970s as low-cost alternatives to actively managed funds relying on human investment-picking expertise. Investors who previously needed to invest at least $100,000 to qualify for Admiral shares can now get in with just $10,000 for Vanguard index funds, which passively track stock or bond market indexes.

For example, Admiral shares of Vanguard’s Total Stock Market Index Fund will charge $7 in annual expenses for every $10,000 invested, provided an investor has at least $10,000 in the fund. That’s down from $18 in annual expenses for Investor shares in the $138 billion fund, which requires a minimum of $3,000.

For Vanguard’s less-popular actively managed funds, the new investment minimum for Admiral shares is $50,000 instead of $100,000.

A total of 52 of Vanguard’s more than 170 U.S. funds offer Admiral shares with the new lower eligibility requirements, including 17 index funds and 35 actively managed funds.

Vanguard will begin converting qualifying accounts to Admiral shares in coming months, affecting nearly 2 million clients.

The privately held, shareholder-owned company, based in Valley Forge, Pennsylvania, has offered its Admiral share class for 10 years, along with its Investor class and institutional shares geared toward clients like 401(k)s or other workplace savings plans.

Vanguard’s Admiral share class now holds about $340 billion, or about one-quarter of the nearly $1.5 trillion in U.S. mutual fund assets that Vanguard manages. With the expanded access to Admiral shares, that class will grow to $430 billion, with the $90 billion shifted from Investor class shares.

Wednesday’s announcement is the latest in a string of cost-cutting moves this year by Vanguard, which has used its size to become more efficient and drive down expenses, challenging chief rivals Fidelity Investments and Capital Group’s American Funds. In May, Vanguard began offering its brokerage clients commission-free trades in Vanguard exchange-traded funds, a fast-growing business where Vanguard is playing catch-up to rivals like BlackRock Inc.’s iShares ETFs and State Street’s “SPDR” ETFs.

Last month, Vanguard began offering an ETF share class of its Vanguard 500 Index, a $94 billion behemoth tracking the Standard & Poor’s 500. The ETF version charges $6 per $10,000 in annual expenses, compared with $18 for the fund’s Investor class, and $7 for the Admiral class.

Vanguard last month also launched 19 new funds that offer traditional mutual fund shares along with ETF shares that hold the same basket of stocks or bonds as the conventional fund shares.

ETF shares are priced throughout the trading day and can be traded like stocks. That makes it possible to lock in a preferred price without waiting for a closing price, unlike with mutual funds, whose shares are priced once a day.

Last week, Vanguard announced expense cuts at its 529 college savings plan offered through the state of Nevada.

(This version Corrects two references to annual fee amounts by adding a missing zero. The fees are based on annual expenses per every $10,000 invested, rather than per every $1,000 invested. Will be updated. For global distribution.)