When it comes to high-quality, low-cost mutual funds that deliver superior long-term performance, Vanguard may be the crowd favorite, but T. Rowe Price deserves a round of equally enthusiastic applause. That’s good news for investors who want to build a fund-only — and T. Rowe funds, specifically — portfolio.
But venture outside of the T. Rowe Price mutual fund ecosystem and it’s a different story. Trading costs, account fees and high minimums on the company’s brokerage side compare poorly with the standard offerings at most other discount brokerage firms.
T. Rowe Price is best for:
- Long-term mutual fund investors.
- Direct access to T. Rowe Price funds.
- Free retirement planning tools.
T. Rowe Price at a glance
|Stock/ETF trading costs||$19.95 ($9.95 on accounts with 30-plus trades in previous 12 months).|
|Options trades||$19.95 + $1 per contract ($9.95 + $1 per contract for qualifying accounts).|
|Account minimum||$1,000 for IRAs; $2,500 for brokerage account. Minimum subsequent investment requirement for both is $100.|
|Account fees (annual, transfer, closing, inactivity)||$20 annual fee on IRAs with account balance below $10,000. $30 annual fee on brokerage accounts. Annual fees waived if certain conditions are met. There's also a $20 closeout fee and a $50 account transfer or termination fee.|
|Trading platform||Basic research, analysis and screening tools.|
|Mobile app||Standard mobile app to view accounts, investment returns and research funds and perform mutual fund and workplace retirement plan transactions. Transactions not available for brokerage accounts.|
|Mutual funds||More than 2,000 no-transaction-fee mutual funds.|
|Research and data||Free data with basic research and charting capabilities, market news, analyst upgrades and downgrades; quotes are delayed.|
|Customer support/branches||Monday-Friday 8 a.m-8 p.m. ET.
Technical phone support 7 a.m.-10 p.m. ET on weekdays, 9 a.m.-5 p.m. ET on weekends.
Six local branches.
Where T. Rowe Price shines
High-quality, low-cost mutual funds: Price and performance go hand in hand. More specifically, a fund’s cost — the expense ratio — is tied inextricably to the returns it delivers to investors. On both these measures, T. Rowe Price funds shine, even — and most notably — in its actively managed mutual fund lineup.
Based on fiscal year-end data as of June 30, 168 of 213 T. Rowe funds that are more than 6 months old were found to have expense ratios below the category average of their peers, according to Lipper Inc. And as of the second quarter of 2016, 129 of the company’s 179 rated funds have four- or five-star overall ratings from fund tracker Morningstar.
Robust selection of no-load and no-transaction-fee mutual funds: T. Rowe touts its lineup of more than 126 no-load mutual funds, which is in keeping with founder Thomas Rowe Price Jr.’s position that fees should be based on the assets under management, not charged as a commission — that is, an upfront or back-end sales load.
Short pause for a teaching moment: Investors should never pay a sales load for any mutual fund unless its investment objective is so specialized that you can’t get the coverage with a no-load fund or ETF. Research consistently shows that the majority of mutual funds that charge a sales load deliver no additional value to shareholders, and, in fact, the compounding cost of those fees ends up harming investors’ returns over the long term.
Another attractive feature is the firm’s selection of no-transaction-fee (commission-free) mutual funds, which totals more than 2,000 when you include the non-T. Rowe funds available. While the selection of NTF funds on the roster at Merrill Edge, Fidelity and Schwab is even greater, 2,000 choices is more than enough to meet most fund investors’ needs.
Direct investment access to T. Rowe’s fund lineup: A bonus for T. Rowe customers: Buying the company’s own funds right from the source, instead of through another brokerage, means you avoid paying a transaction fee and any markup charged by a middleman.
Note on account setup for new customers: T. Rowe Price funds are sold directly, not through the company’s brokerage, and held in a separate retail account. If you want to buy non-T. Rowe funds and any stocks or ETFs through the company, you’ll need to set up a T. Rowe brokerage account.
Fund screening and retirement planning tools: Mutual fund investors will appreciate free access to some top-notch fund research and screening tools. Morningstar’s Portfolio Manager allows users to create a portfolio or watch list to monitor and dig deep into a fund’s performance and underlying holdings. T. Rowe’s Mutual Fund Gateway tool makes it easy to research funds by family, category — including target-date funds — and Morningstar rating.
Three standout retirement tools on T. Rowe’s website can help you craft a well-rounded, balanced portfolio, figuring out retirement income needs and testing the overall health of your retirement savings. They’re available to the public, though you may have to register as a guest on the site, which will save your inputs:
- The asset allocation planning tool offers portfolio mix guidelines for retirement, based on your birth year; college savings, based on a child’s age; or an upcoming planned expense, based on the number of years until you need the cash.
- The retirement income calculator projects your monthly spending money in retirement based on your current savings and other inputs.
- FuturePath is a sophisticated but easy-to-use retirement planning simulator that offers an impressive level of customization. T. Rowe’s standout tool starts with all the standard inputs: salary, current retirement savings and contributions, desired retirement age. It then uses Monte Carlo analysis, running 1,000 market performance simulations, to calculate the probability that you’ll achieve your financial goals. What makes FuturePath better than similar calculators is that it allows users to add important plan-changing events such as future income streams, like a one-time windfall from selling a business or home; ongoing income from employment or a rental; and future expenses such as major purchases, health care costs and college tuition.
Where T. Rowe Price falls short
Stock and ETF trading costs: The company’s $19.95 stock and ETF trading commissions are at the high end of the spectrum, even when compared with other fund-centric companies like Fidelity ($4.95 per trade) and Vanguard ($7 for first 25 online trades per year; $20 for subsequent trades).
Investors can cut the commission in half by making more than 30 trades a year or having at least $100,000 in assets in T. Rowe accounts. But even then, the $9.95 discounted commission is no great shakes compared with the standard no-strings-attached commissions at OptionsHouse ($4.95 per trade) and Merrill Edge ($6.95 per trade).
Mutual fund transaction fees: Compared with the competition, T. Rowe’s $35 fund transaction cost, for non-T. Rowe transaction-fee funds, falls in the middle. At the high end, Charles Schwab, TD Ameritrade and Fidelity charge from $49.95 to $76. At the low end is TradeKing, which charges a $9.95 transaction fee for no-load funds and $0 for funds that charge a load. The real standout in the category is Merrill Edge, which charges $19.95 and has a lineup of 5,000 no-transaction-fee funds, the most of any brokerage.
Minimum initial investment requirements: There’s no reason to delay investing because you can’t meet a firm’s minimum initial investment requirement. If T. Rowe’s $1,000 initial deposit to open an IRA (and $100 minimum to add to an existing account) or $2,500 to open a nonretirement brokerage account is too big a hurdle, there are other brand-name options.
Account fees: Here again, T. Rowe’s terms and conditions are a turnoff. The company charges a $30 annual fee on brokerage accounts and a $20 annual service fee on T. Rowe Price mutual fund accounts with balances below $10,000. You can avoid the mutual fund account fee by signing up for electronic delivery of statements, confirmations, prospectuses and shareholder reports or by keeping $50,000 in combined account balances with the company. To avoid the brokerage fee, you must have made five or more commission-generating trades in the previous year, hold $50,000 or more in T. Rowe mutual funds or, for households, have at least $100,000 in qualifying assets with the company.
Is T. Rowe Price right for you?
T. Rowe Price’s mutual funds are its bread and butter, and that’s where the company shines. If you’re primarily a mutual fund investor, the company’s array of no-load, low-expense-ratio funds can deliver a “whole portfolio” solution at a low cost — especially if you meet the terms to waive annual account fees, which is as easy as signing up for electronic paperwork delivery.
What T. Rowe doesn’t offer is the free-range environment you can find at brokerage firms that cater to investors also interested in stocks, options and ETFs. For that you want a broker that offers lower commission costs, account fees and minimums and, depending on your portfolio-building strategy, a lineup of no-commission ETFs.
Updated Feb. 28, 2017