My situation is this - I have recently accepted a position which uses my MBA degree as well as my previous experience. The company where I accepted the position offers a 401(k) through Fidelity with no contribution matching. Now I realize customer service and ease of management and research are important in a 401k. I have an older friend who left a very decent no-load index fund for a front-end loaded fund with a much higher expense ratio just because there was a financial advisor to hold her hand. I very much understand that customer service is extremely important to many people and as I understand it, Fidelity is very good in these respects. But for me, there is only one aspect which I find important above all else in a fund - total return.

Now generally I don't see a large difference between Fidelity's funds and other funds in top line performance so fees are obviously important to me. Fidelity's 401k offers my company's employees only fifteen options in the Fidelity Advisor funds and one option of a treasury note based fund. The average expense ratio of the Fidelity funds is 1.31% (this is the fee taken every year), all have a front end sales load of 3.5% (this is a percentage taken immediately upon investment) as well as an average 0.55% 12b1 fee and short term trading fees as they apply. After fifteen years of $10k/yr contributions at an average rate of 9% for the stock market, a good index fund with the same top line return would yield $289,000 vs. Fidelity's $253,000. (Thanks for the customer service, Fidelity, here's $36,000 for your time.) The difference is only because of the fees. I picked a popular index fund that has a 0.22% expense ratio for comparison.

The net of all this is that the 401k through Fidelity is only marginally better than not doing anything at all! (i.e. with tax adjustment - after 15 years, $253,000 for Fidelity 401k vs. $246,000 for plunking the money in a good index without the 401k.) For less than four or five years, the fees make the Fidelity funds worse than just putting the money in the treasury fund (which I assume is no-load). Pathetic as that is, the treasury fund the only option I really have.

In fairness, there are other funds which have similar or even higher fees than Fidelity's. Fidelity's 401k for my company just forces employees to choose from their funds, all of which have similar fees. If Fidelity's 401k gave at least one or two no-load, low fee index fund options, I would rate them much, much higher.

It sounds like Fidelity has customer service down to an art, but I'm only giving them two stars because they don't cater to people who value total return over everything else.




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