Fidelity's ETF Fee Spurs a Backlash

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Fidelity's ETF Fee Spurs a Backlash

Postby stratton » Fri Mar 15, 2013 3:13 am

The expansion of the no fee ETF trades has a few strings attached.

WSJ: Fidelity's ETF Fee Spurs a Backlash
But the Boston money manager is tacking on an additional fee of $7.95 a trade to investors who sell the ETFs within 30 days and to financial advisers who sell within 60 days.

Advisers also complained that Fidelity replaced 10 of the commission-free iShares ETFs on its previous menu. Nine of the new ETFs have lower trading volumes, suggesting they are less popular with investors.
...
"They made their program much worse, and made it seem like they made it better," said Matthew Tuttle, a financial adviser in Stamford, Conn. Mr. Tuttle emailed a representative at Fidelity on Thursday to tell the company he would withdraw all $115 million of his client funds in iShares ETFs if it didn't reverse its redemption fee.

Paul
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby jpsfranks » Fri Mar 15, 2013 4:36 am

A $7.95 short term trading fee seems hardly worth mentioning. If you're a long term investor you probably won't ever trigger it, and even if you did it's a pittance when compared to a mutual fund redemption fee, for example, which amount to a percentage of the assets sold rather than just a nominal fixed fee.

Also, the low volume on some of the new ETF selections is of concern, but other than that the offerings seem superior. For example for emerging markets they switched from EEM (expense ratio %0.69) to IEMG (expense ratio %0.18). I think the new offerings generally track more comprehensive indices as well.

More info including which ETFs were replaced here:
https://www.fidelity.com/etfs/ishares-faqs

It seems the shame should be on Blackrock for introducing separate duplicative ETFs to try to remain competitive while locking their existing customers into more expensive products.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby nisiprius » Fri Mar 15, 2013 8:07 am

I think this is wonderful. I hope the practice spreads. If ETF advocates are sincere that ETFs are not just about speculation, they should be applauding. If ETFs are are truly about low costs, the smoothness for advisors of handling stock and ETF trades in the same workflow, and the "control" of picking a favorable instant for the purchase or sale of a long-term investment, this shouldn't bother anyone.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby awval999 » Fri Mar 15, 2013 8:28 am

Yes--- I would say for the vast majority here this is nothing to worry about. But I could see a daytrader using commission free ETF's upset.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby nisiprius » Fri Mar 15, 2013 9:01 am

I can't imagine even a hobbyist day-trader restricting themselves to Fidelity's commission-free ETF list. Surely they would go to one of the casinos that comps the high-rollers, I mean a brokerage that understands the needs of traders.

As for advisors, is Matthew Tuttle saying that he often trades in and out of these ETFs in his customers' accounts within periods of less than sixty days? What is he doing?

I can see that the substitution of ten similar new ETFs for old ones could be an issue in a taxable account, and it does seem as if... well, if I were Fidelity, I'd have said that after April the fee would be charged but would be reimbursed on request.
Last edited by nisiprius on Fri Mar 15, 2013 9:15 am, edited 1 time in total.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby TheIndexer » Fri Mar 15, 2013 9:07 am

I don't see what the big deal is about this. Other brokers do the same. For example, TD Ameritrade has commission-free ETFs. But, you have to hold them for 30 days, otherwise you pay a short-term trading fee.

I think with these new iShares ETFs Fidelity just became the best brokerage for a Boglehead, if you don't want to use the poor interface of VBS. The free trades with Wells PMA are going away for new customers at the end of this month. TD Ameritrade's lineup is good, but you can't get Vanguard Total International for free. Fidelity seems to now offer the best overall package, especially if you take their great banking services into account.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby SpringMan » Fri Mar 15, 2013 9:32 am

No issue here. Fidelity used to charge $7.95 to purchase and $7.95 to sell these ETFs. Now they are free to purchase and only $7.95 to sell if they are sold within 30 days. That's an improvement.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby HueyLD » Fri Mar 15, 2013 9:48 am

But the Boston money manager is tacking on an additional fee of $7.95 a trade to investors who sell the ETFs within 30 days and to financial advisers who sell within 60 days.

...
"They made their program much worse, and made it seem like they made it better," said Matthew Tuttle, a financial adviser in Stamford, Conn. Mr. Tuttle emailed a representative at Fidelity on Thursday to tell the company he would withdraw all $115 million of his client funds in iShares ETFs if it didn't reverse its redemption fee.

I think Matthew Tuttle is just another commission hungry salesman who tried to complain about a practice that is good for many investors who don't churn their portfolios. Good for Fidelity and bad for Tuttle!
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby Boglenaut » Fri Mar 15, 2013 9:50 am

HueyLD wrote:
But the Boston money manager is tacking on an additional fee of $7.95 a trade to investors who sell the ETFs within 30 days and to financial advisers who sell within 60 days.

...
"They made their program much worse, and made it seem like they made it better," said Matthew Tuttle, a financial adviser in Stamford, Conn. Mr. Tuttle emailed a representative at Fidelity on Thursday to tell the company he would withdraw all $115 million of his client funds in iShares ETFs if it didn't reverse its redemption fee.

I think Matthew Tuttle is just another commission hungry salesman who tried to complain about a practice that is good for many investors who don't churn their portfolios. Good for Fidelity and bad for Tuttle!


It'd be interesting to see if he actually moves, and if so how that turns out.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby snowman » Fri Mar 15, 2013 10:19 am

From the business strategy standpoint, I applaud Fidelity for what it is doing. The investing trend in the past 10 years has been undeniably towards low cost index mutual funds and ETFs, and Vanguard has been the largest beneficiary of it (as expected). They had to do something to stay competitive in the long run. The reduction in minimum investment amount and expense ratios in their Spartan index funds 3 months ago - where they basically matched Vanguards admiral funds - provided a clue as to where Fidelity's long term focus is. This announcement just confirms to me that they have a strategy in place, and this is a step towards its execution.

I am sure they looked at many different options (i.e. creating their own ETFs, different levels of partnership with different providers, etc.), and this was the best one, in their own conclusion. I am also sure that they have the next 2-3 steps planned ahead, and will adjust and tweak them as business conditions will dictate. Just like any other business, they know that while their decision will not please every single one of their investors, it will benefit the vast majority of them, and the company, in the long run.

I say good for you, Fidelity, and please let people like Mr. Tuttle go elsewhere! He will not leave on his own, not until he begs for sizable commission credits and is denied. Even then, he may not leave because there isn't better deal out there.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby MnD » Fri Mar 15, 2013 10:58 am

Financial advisers that are robbing their clients with ETF trading-based strategies while skimming X percent of asset value quarterly are upset. Boo-Hoo! :mrgreen:

I think the new lineup is great. We have a 401-K with brokerage option at Fidelity so don't have to worry about taxes and I think i can simply and improve things quite a bit with the new offerings.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby stratton » Fri Mar 15, 2013 1:22 pm

I have a guess or two...
nisiprius wrote:As for advisors, is Matthew Tuttle saying that he often trades in and out of these ETFs in his customers' accounts within periods of less than sixty days? What is he doing?

Tax loss harvesting. I remember how much I was doing in 2007 and 2008. I did over 100 trades in 2008 because of this and that was trying to keep the number down.

Reinvesting distributions and selling for monthly payouts to his investors.

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Re: Fidelity's ETF Fee Spurs a Backlash

Postby MN Finance » Fri Mar 15, 2013 2:12 pm

HueyLD wrote:
But the Boston money manager is tacking on an additional fee of $7.95 a trade to investors who sell the ETFs within 30 days and to financial advisers who sell within 60 days.

...
"They made their program much worse, and made it seem like they made it better," said Matthew Tuttle, a financial adviser in Stamford, Conn. Mr. Tuttle emailed a representative at Fidelity on Thursday to tell the company he would withdraw all $115 million of his client funds in iShares ETFs if it didn't reverse its redemption fee.

I think Matthew Tuttle is just another commission hungry salesman who tried to complain about a practice that is good for many investors who don't churn their portfolios. Good for Fidelity and bad for Tuttle!


Pretty hard ont he guy. If the same quote was uttered by Rick F, I don't think there would be a negative reaction to the comments. He's probably in the same business, though I don't know him or what he charges. He doesn't keep any of the trade fees, that goes to Fidelity, and if anything he's advocating for keeping costs down for the investors. It's the opposite move schwab just made which opened up the no fee etf list.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby Barry Barnitz » Fri Mar 15, 2013 2:58 pm

Hi:

An additional link: BlackRock, Fidelity Launch ETF Partnership

BlackRock, the owner of the world’s biggest ETF company, iShares, agreed to help Fidelity Investments’ in its much-anticipated efforts to become a much bigger player in the fast-growing world of index exchange-traded funds.

Also, Fidelity is more than doubling to 65 funds the number of iShares ETFs it offers commission free to individuals and advisors on its trading platform, and Boston-based Fidelity also revealed plans to create new ETF portfolio strategies that will use iShares funds within its managed account offering, the two companies said today in a press release.

“As part of Fidelity’s growing sector-based business strategy, the company has established a strategic relationship with BlackRock whereby the firm will help support Fidelity’s future passive sector investment management efforts,” Fidelity said in the press release. The partnership will focus on sector indexing and broad index strategies, a Fidelity official said.


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Re: Fidelity's ETF Fee Spurs a Backlash

Postby tuttletactical » Fri Mar 15, 2013 4:14 pm

Guys, Obviously we disagree on investing philosophy, I believe in tactical you believe in buy and hold. I will not bother debating that, I have great respect for John Bogle and Vanguard, we just do things differently. Because we are tactical, sometimes I will own something for longer than 60 days sometimes I won't, it all depends on the trend of the market. For a while now Fidelity has allowed us 30 ETFs without a commission going in or going out, now out of the blue they have changed this. I do not charge or earn commissions and I do not churn accounts, our clients pay an annual fee based on assets and I try very hard to keep all costs as low as possible for them, hence my use of commission free ETFs. We are not one of those firms that caters only to the wealthy, if we were then a 7.95 fee every once in a while wouldn't be a big deal, we have lots of smaller accounts, this is not fair to these guys. As an RIA I am a fiduciary and as a fiduciary my clients interests must come first, if there is a place I can buy and sell for free (ie. Schwab) then I have to seriously consider that, not doing so would be a breach of my fiduciary duty.

Regards,

Matthew Tuttle
Tuttle Tactical Management, LLC
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby MnD » Fri Mar 15, 2013 4:55 pm

MN Finance wrote:Pretty hard ont he guy. If the same quote was uttered by Rick F, I don't think there would be a negative reaction to the comments. He's probably in the same business, though I don't know him or what he charges. He doesn't keep any of the trade fees, that goes to Fidelity, and if anything he's advocating for keeping costs down for the investors. It's the opposite move schwab just made which opened up the no fee etf list.


There's only a trade fee for an individual investor selling a position previously bought within 30 days, or 60 days for an advised account.
And the fee is only the same $8 that they charge for any ETF trade except the free ones.
I gladly pay the $8 at Fidelity if just the right ETF I want to buy isn't on the freeby list.

If something happens that's so compelling to reverse a purchase within 30/60 days,is someone really going to get worked up over paying $8?
If $8 is a "big number" that one just might have pay under unusual circumstances relative to your investment balances, maybe they should stick to no load mutual funds with $100 minimum balances or a savings account at the credit union.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby nisiprius » Fri Mar 15, 2013 5:04 pm

tuttletactical wrote:Guys, Obviously we disagree on investing philosophy, I believe in tactical you believe in buy and hold. I will not bother debating that, I have great respect for John Bogle and Vanguard, we just do things differently. Because we are tactical, sometimes I will own something for longer than 60 days sometimes I won't, it all depends on the trend of the market. For a while now Fidelity has allowed us 30 ETFs without a commission going in or going out, now out of the blue they have changed this. I do not charge or earn commissions and I do not churn accounts, our clients pay an annual fee based on assets and I try very hard to keep all costs as low as possible for them, hence my use of commission free ETFs. We are not one of those firms that caters only to the wealthy, if we were then a 7.95 fee every once in a while wouldn't be a big deal, we have lots of smaller accounts, this is not fair to these guys. As an RIA I am a fiduciary and as a fiduciary my clients interests must come first, if there is a place I can buy and sell for free (ie. Schwab) then I have to seriously consider that, not doing so would be a breach of my fiduciary duty.

Regards,

Matthew Tuttle
Tuttle Tactical Management, LLC
Thank you for posting.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby bayview » Fri Mar 15, 2013 5:15 pm

nisiprius wrote:I can't imagine even a hobbyist day-trader restricting themselves to Fidelity's commission-free ETF list. Surely they would go to one of the casinos that comps the high-rollers, I mean a brokerage that understands the needs of traders...


:mrgreen:
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby Default User BR » Sat Mar 16, 2013 2:00 am

That's certainly a lot lower fee than TD Ameritrade's. They charge about $20, essentially the buy and sell commission. Their commission-free list is better though, and for buy and hold types it doesn't matter too much what the fee is.


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Re: Fidelity's ETF Fee Spurs a Backlash

Postby umfundi » Sat Mar 16, 2013 6:50 am

now out of the blue they have changed this

Off topic, but that is a big deal for me. I signed up with an advisor a few months ago, then they recently changed their fees.

I asked if they would honor our relatively new agreement for a year from the original date, they said no. They are now my ex-advisor.

This is a very big time and emotional drain for me. Changing advisors is not an easy decision or process.

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Re: Fidelity's ETF Fee Spurs a Backlash

Postby central nj » Sat Mar 16, 2013 8:28 am

Thank you for posting this.

Fidelity let me open a tiny sep-ira with only a few hundred dollars last year. It doesn't meet the minimum for any of there funds---so i bought one of the free etfs----i will need to switch it over to one of their free ones for when i need to sell it.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby jeffyscott » Sat Mar 16, 2013 9:39 am

Funny thing is just a month ago Mr. Tuttle posted "I am not a trader or market timer", here: http://www.wallstreetwise.net/2013/02/i ... ty-in.html
:confused

FWIW, Mr. Tuttle's results are posted here: http://tuttletactical.com/ttmperformance.php

Results seem pretty good, but then there is a disclaimer, which seems to be saying much of the reported results are hypothetical, based on back-testing :?: :

Prior to (6/1/09 TTM Income), (1/1/10 TTM IncomePlus), (3/1/10 TTM Tactical Balanced), (7/1/09 TTM Endowment), 6/1/10 TTM Market Masters), (9/1/09 TTM All Weather), (6/1/10 TTM Alpha), (8/1/09 TTM 500), (6/1/09 TTM NASDAQ), (2/1/12 TTM Risk Parity), (7/1/11 for TTM Momentum Series: Tactical All Asset, Tactical Growth, Tactical Income and Tactical Multi-Strategy) (9/1/11 for TTM Black Swan, and for TTM Institutional Series: Tactical Low Volatility, Tactical Balanced, and Tactical Growth), (10/1/2012 for TTM Tax Managed Low Volatility) and (7/1/2012 for TTM Institutional Income) the results are hypothetical and are generating using TradersStudio® software managed according to the dictates of the programs and net of a 1.85% annual fee. All results for TTM Tax Managed Growth and TTM Municipal Income are hypothetical.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby LazyNihilist » Sat Mar 16, 2013 11:18 am

tuttletactical wrote:Guys, Obviously we disagree on investing philosophy, I believe in tactical you believe in buy and hold. I will not bother debating that, I have great respect for John Bogle and Vanguard, we just do things differently. Because we are tactical, sometimes I will own something for longer than 60 days sometimes I won't, it all depends on the trend of the market. For a while now Fidelity has allowed us 30 ETFs without a commission going in or going out, now out of the blue they have changed this. I do not charge or earn commissions and I do not churn accounts, our clients pay an annual fee based on assets and I try very hard to keep all costs as low as possible for them, hence my use of commission free ETFs. We are not one of those firms that caters only to the wealthy, if we were then a 7.95 fee every once in a while wouldn't be a big deal, we have lots of smaller accounts, this is not fair to these guys. As an RIA I am a fiduciary and as a fiduciary my clients interests must come first, if there is a place I can buy and sell for free (ie. Schwab) then I have to seriously consider that, not doing so would be a breach of my fiduciary duty.

Regards,

Matthew Tuttle
Tuttle Tactical Management, LLC


Fair point.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby ftobin » Sun Mar 17, 2013 3:21 am

I'm a little surprised Fidelity is doing this. They make money when you trade. Market makers often end up even paying places like Fidelity for sending them order flow. A simple example can be shown with the rebates ECNs apply: with a person buying 1000 shares of something, posting a non-marketable limit to buy, Fidelity picks up 1000*(0.0025/share rebate) = $2.50.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby Default User BR » Sun Mar 17, 2013 1:36 pm

LazyNihilist wrote:Fair point.

I think it's a silly one. If he can find a better deal at another brokerage he should move. I can pretty much guarantee that he won't. The fact that this became a much better deal for most and a less good deal, but still not too bad, for a few active managers isn't much to get upset about.


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Re: Fidelity's ETF Fee Spurs a Backlash

Postby LazyNihilist » Sun Mar 17, 2013 2:36 pm

Default User BR wrote:
LazyNihilist wrote:Fair point.
The fact that this became a much better deal for most and a less good deal, but still not too bad, for a few active managers isn't much to get upset about.

Brian


That is the issue. The move made sense on the whole, but was punishing active managers. I think it's OK for them to complain.
Doesn't mean fidelity should revert back. :happy
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby snowman » Mon Mar 18, 2013 10:02 am

Matthew,

I looked at your website, the blog, and some of the articles you have written over the years. You are up front about your investing strategy - "buy-and-hold does not work"; I give you credit for that. Instead, your firm employs various market timing strategies using proprietary software, and charging your clients 1.85% annual asset management fee. Fair enough, everyone needs to make a living some way.

The issue I take with your argument that "it is not fair" goes back to my post. So Fidelity decided that they are willing to potentially lose short-term ETF traders as their customers, for the benefit of their long-term ETF investors (if you can call any holding period over 30/60 days long-term). There is nothing unfair about it. It's a business decision, deal with it! Your cost of doing business went up a little, but you do have a choice - you either comply with new pricing by adjusting your own business model, or you take your accounts elsewhere. If Fidelity truly "made their program much worse", as you claim in your article, than it will pay for it by losing its customers, who are always looking out for best value. Maybe you will find better value at Schwab, since they do not charge that short-term trading fee - yet. Plus, there is always E-Trade.

What really astounds me is that you would subject $2,000 account to your short-term trading strategies! When you say "It is not fair to these guys", that's one place where I fully agree with you. It appears to me Fidelity is doing your little guys a favor - it actually tries "very hard to keep all costs as low as possible for them" - something you failed to do as their fiduciary.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby tuttletactical » Wed Mar 20, 2013 5:41 pm

I agree with you, as there are many market timers and traders out there that will churn a small account and try earn as much commissions as possible.

With us, the numbers of trades are based only on improvements in performance. The reason we have small accounts is that we have made a decision that we will have no minimum because I understand what is out there for people with smaller accounts and I can't in good conscience let them be subjected to that. We have created an infrastructure were we don't really make any money from smaller accounts but it doesn't cost us money.

Since our trading decisions are based on performance only, sometimes we hold for longer than 60 days, sometimes not. We don't take any commissions, our revenue is based solely on fees.

I understand that I have to deal with it, in business your suppliers sometimes raise the cost of doing business, I just don't have to be happy about it.

Again, we could argue methodology, buy and hold vs. tactical, I won't do that here. You passionately believe buy and hold is right for everyone, I passionately believe that being tactical is right for everyone, regardless of account size.
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Re: Fidelity's ETF Fee Spurs a Backlash

Postby Alskar » Wed Mar 20, 2013 10:22 pm

Mathew,

I've enjoyed reading your comments. Thirty years of investing has convinced me that tactical cannot work over the long haul, but I applaud your transparency and admire the chutzpah of anybody that thinks math doesn't apply to them! I appreciate folks like yourself that diligently work to keep the market efficient for lazy blokes like me. :sharebeer

However, I think your beef is really with iShares not Fidelity. I'm not privy to the details of the business relationship between Fidelity and iShares, but as I understand it, iShares is paying a marketing fee to Fidelity to offer iShares ETF's commission-free. I doubt iShares is paying Fidelity the full $7.95 per trade, but based on the disclosure I get when I trade the iShares ETF's in the program, Fidelity is being at least partially compensated for the trading costs.

I think the commission-free ETF's at Fidelity have been very popular. I imagine that iShares has got a bit of sticker-shock paying Fidelity for the trades of the iShares ETF's. I can also imagine that the free-trades have contributed a bit of volatility to the iShares ETF's that are sold commission-free at Fidelity. Both of these concerns can be addressed by instituting a minimum holding period.

Many active managers such as yourself are using the Charles Schwab platform. You may want to look into using Charles Schwab at the custodian for your clients funds.
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