Vanguard Strikes Back in Mutual Fund Price Wars

More people can be admirals at Vanguard now.

Vanguard on Wednesday morning lowered the minimum initial investments for the low-cost Admiral Share classes of more than 50 active and passive funds. It dropped the ante for broad market index fund Admiral Shares to $10,000 from $100,000. Many of Vanguard's actively managed stock and bond funds also lowered their Admiral Shares minimums to $50,000 from $100,000.

The news means big savings for investors. For example, Admiral Shares of  Vanguard Total Stock Market Index (VTSAX) charge a rock-bottom fee of 0.07%, while Investor Shares with a minimum investment of $3,000 cost 0.18%. Fees for the Admiral Shares narrowly eke past  Schwab Total Stock Market Index (SWTSX), which last year lowered its expense ratio to 0.09% (after fee waivers) and has a minimum investment of $100. Meanwhile,  Fidelity Spartan Total Market Index  has a minimum investment of $10,000 and charges 0.10%.

The cost savings are similarly strong with  Vanguard Total Bond Market Index (VBTLX), where the Admiral Shares cost 0.12%, and the Investor Shares charge 0.22%. Another noteworthy difference is  Vanguard Wellington Admiral Shares (VWENX), which cost 0.23% compared with the 0.34% fee on Investor Shares.

While a $10,000 hurdle on index funds and $50,000 for active funds is steep for many investors, Vanguard says nearly half their individual investor client base should now qualify for the Admiral Shares. Investors rolling over assets from employer 401(k) plans may find the lower minimums more attractive.

The new Admiral Share eligibility requirements apply to a total of 52 Vanguard funds. Admiral Shares of the family's sector index funds,  Vanguard Tax-Managed Capital Appreciation (VTCLX), and  Vanguard Tax-Managed Growth & Income  will keep their $100,000 minimums.

Increases in scale and price competition from Schwab, Fidelity, and ETFs pushed Vanguard to make more egalitarian what was initially seen by some as an exclusive benefit for bigger investors. Vanguard introduced Admiral Shares in 2000 for accounts with either $250,000 balances or $150,000 balances and three-year histories. In 2006, the family lowered the requirements to $100,000 or $50,000 in a 10-year-old account that had registered for online account access on Vanguard.com. The requirement relaxation coincided with index fund price cuts from Fidelity and Schwab and phenomenal ETF asset growth. At the same time, Vanguard has grown to be the largest and most consistent fund family in the industry with nearly $1.5 trillion in assets under management and a growing share of traditional fund and ETF inflows. It was one of the few firms to see more new investments than redemptions during the past few years. In the depth of 2008's financial crisis, for example, it gathered more than $50 billion in net inflows.

Although Admiral Shares always have been a great deal for investors who could clear the minimum investment hurdles, some investors groused early on that by offering lower-cost shares for higher-balance accounts, Vanguard was abandoning the little guy and pandering to the wealthy investor. Vanguard has always countered that larger accounts are less costly to maintain than smaller accounts, and that disciplined savers and investors could eventually meet the Admiral requirements. It never promised to adjust the Admiral Share admission criterion, but never said never. Admiral Shares still aren't available to everyone, but Vanguard has come more than half way to meet smaller investors.

Vanguard estimates that 2.4 million fund owners now qualify for Admiral Shares--that's almost half of its individual investor base.

Associate director of fund analysis Dan Culloton contributed to this report.

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