How low can you go could be the new mantra among the behemoths of the passive fund world, now Fidelity has just launched two zero-cost index funds in the US. It’s a move that has thrown down the gauntlet to the industry and is a savvy marketing decision that may prove positive for Fidelity, in the short run at least, but has certainly proved negative for competitors such as BlackRock, Franklin Resources and Invesco, with shares in their stock dropping on the news.

Fidelity’s decision is possible due to the size and structure of the business: they can use their own in-house indices (no fees to FTSE or MSCI) and it’s still possible to make money from stock lending to short sellers. Getting assets in the door now should also allow upselling to more expensive active Fidelity funds later.

Regardless, from a perception point of view 0% explicit fees is quite a milestone. It’s the natural continuation of the passive investing phenomenon, which has undeniably been a benefit to society. But it’s also a challenge to any asset management firm whose business model relies on being the cheapest solution out there. Being ‘the cheapest’ can only work if you have scale and even then, success may just mean in the end you get regulated like a utility.

For any investment business that isn’t among the giant global brands, adopting this sort of price-cutting strategy is setting out on the road to ruin. But there is another business strategy that still works for both the investor and the investment business: that of offering clients the ‘best value’. This isn’t the same as being ‘the cheapest’ as it takes into account benefits received as well as costs.

Passive investing has its place and for clients where price is everything the fact Fidelity has made it even cheaper is going to be hard to ignore. But not every client will want to invest in every equity in an index determined by some third party regardless of its price or characteristics. Many will want a more refined approach, investing only in great businesses at a reasonable price, decent businesses at a knock-down price, good companies whose products and services make a positive societal or environmental impact or some other criteria. And every client would benefit from a portfolio whose asset allocation is diversified and calibrated to their particular risk budget. The idea of paying peanuts is certainly attractive…but not everyone wants the investment equivalent of a monkey.