Fund giant Vanguard this week said it will merge more than $660 billion of its Target Date Retirement funds, which are ubiquitous and popular in 401(k) plans.

Chairman Mortimer “Tim” Buckley said Vanguard will save investors $190 million in fees, or about 0.03% of assets, with the move. Vanguard currently manages $8.3 trillion in investor money across all its funds.

Some criticized the consolidation, saying that “Vanguard could have saved investors money years ago” with the same consolidation of share classes, said Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter, which tracks the performance of Vanguard funds. “I’m all for saving investors money, but Vanguard had the ability to do so many, many years ago and they didn’t.”

But other experts said target date funds across the industry have helped Americans invest in the stock and bond markets at lower costs. Today, both Target Date 2030 funds hold about $59 billion in institutional shares and $39 billion of investor shares in total assets.

“The argument about ‘why not sooner?’ is splitting hairs,” said Michael Finke, a professor of wealth management at American College of Financial Services in King of Prussia.

“Compared to the year 2000, the quality of investment portfolios is far higher and costs far lower” overall, Finke said.

Vanguard’s average expense ratio for target date funds is 0.12%, while the industry average expense ratio for comparable target-date funds is 0.37%, he said, citing Investment Company Institute data.

“We are in a much better place today than before target date funds. Workplace retirement plan sponsors have an incentive to offer low-cost target date funds. They might get sued if costs are too high,” he added. “Investors are comparatively getting an amazing deal with target date funds.”

Take Vanguard’s Target Retirement 2030 fund. The institutional class of shares charges a 0.09% expense ratio, because within the fund, Vanguard uses lower-cost share classes in the portfolio. Vanguard’s Total Stock Market Index Fund Institutional shares, for example, cost 0.03%.

The mom-and-pop version — investor shares — of Target Retirement 2030 cost 0.14%. Many of the underlying share classes are also the more expensive investor shares. The Total Stock Market Index Fund investors shares, which the fund holds, also cost 0.14%.

Finke notes that the price cut is another salvo in the fee war among Vanguard, Fidelity, and Schwab and other leading investment firms. “Vanguard has about 60% of the target date fund market,” he said.

So why the merger now? Vanguard may be having trouble lowering costs further, Wiener said.

It may also be a way for Vanguard to stand out to employers deciding which funds to use in their retirement plans.

Fee wars ending?

As fees begin to approach zero, Vanguard now has to compete on customer service and the “user experience” on its website and trading apps, said Michael Foy, J.D. Power’s head of Wealth Intelligence, based in New York.

“The race to zero for trading fees is over. We’re almost at the finish line,” Foy said. “You’ve got to differentiate on customer experience. Vanguard in the past struggled with customer service, such as people having to wait hours to talk to someone.”

The solution is the better online experience, he said.

“If you provide someone with easy access to information, they won’t have to pick up the phone. It’s a lot cheaper to address investor needs through the app or the website, than pay a customer service rep,” Foy said.

J.D. Power’s most recent digital experience survey ranked Charles Schwab No. 1 for a slick, helpful experience on its website and trading apps. Schwab ranks highest in retirement plan digital satisfaction with a score of 725 out of 1,000 possible points. Bank of America (formerly Merrill) ranked second with a score of 703, and AIG Retirement Services ranks third with a score of 699.

Fidelity came in No. 5 and Vanguard No. 13 out of eighteen firms.

Fidelity said it’s taken heed of investors accustomed to a seamless online experience — not just with banking apps such as Venmo and Paypal — but with consumer favorites Uber and DoorDash.

“The way younger investors demand we engage with them as a result of the pandemic isn’t going to stop now,” said Kelly Lannan, vice president of young investors at Fidelity.

One outcome of the pandemic was “young people paid attention to their finances a lot more,” Lannan said.

Fidelity took feedback from consumer sites such as Reddit and changed its trading apps after this year’s GameStop and Robin Hood controversy over the stocks skyrocketing without any apparent cause.

“A lot of individual investors, many younger, said on Reddit that our education and data were very sound, but the user interface felt outdated. We no longer get compared to other finance sites, but to every shopping app” such as Amazon, Lannan said. “That’s the standard to which they hold us.”