Vanguard Tops Fidelity in Retirement Race

Automatic enrollment in retirement savings plans is paying off enormously for Vanguard. Earlier this week, trade publication Pensions & Investments reported that the Pennsylvania company has edged past its rival Fidelity—by the slimmest of margins—to become the country’s largest manager of assets in defined-contribution accounts, mostly 401(k)s. Vanguard now manages $613 billion in such assets, P&I says, just ahead of Fidelity’s $612 billion. But Vanguard grew at a 28 percent clip in 2013, while Fidelity gained 17 percent. This is a changing of the guard: Fidelity had been the industry leader since 1998.

Vanguard’s growth has been driven by the increasing popularity of low-cost, passive investing, a trend the company detailed in its How America Saves report, an annual published on June 10 this year. The numbers are striking—and heartening to those who preach that fees are the enemy of long-term savings and that individuals are, as a rule, terrible at making market predictions. Vanguard says that as of Dec. 31, 40 percent of its clients were invested solely in an “automatic investment program” such as a target-date fund, which gradually shifts assets from stocks to fixed income as a retirement year approaches. The rate was roughly 75 percent for new plan participants.

“People who sponsor retirement plans are finding low-cost index funds a compelling value and that has been a boon for us,” Chris McIsaac, a managing director at Vanguard, told Bloomberg News.

More employers are automatically enrolling workers in retirement savings plans, a tactic we’ve written about before—from Australia, where the mandatory “superannuation” system is a source of national pride, to a bill from Senator Tom Harkin (D-Iowa) that would require companies with more than 10 employees to sign them up for certain types of funds. Vanguard says that auto-enrollment has grown by 70 percent since 2008.