Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

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RickBoglehead
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Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by RickBoglehead »

From today's Wall Street Journal:

Boston-based firm characterizes so-called infrastructure fee as solution to ‘broken’ business model

By Gretchen Morgenson, updated Feb 27, 2019 - 5:30 AM EST

The Labor Department is investigating Fidelity Investments over an obscure and confidential fee it imposes on some mutual funds, according to a person familiar with the inquiry.

The annual charge, which Fidelity calls an infrastructure fee, is aimed at companies selling shares on the asset manager’s fund platform, and was described in a 2017 internal Fidelity document reviewed by The Wall Street Journal. The fee, which appears to have been implemented in 2016, is “designed to ensure that each Fund Firm meets a minimum required payment to Fidelity.” By marking the charge as an infrastructure fee, the fund firms may be able to avoid disclosing it to investors.

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The WSJ article is here: Government Probes Fidelity Over Obscure Mutual-Fund Fees
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by zlltt »

I'm not sure if Fidelity own 0 minimum 0 fee mutual funds having any hidden fee like

the structure fee charged to 3rd party mf.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by beyou »

There is a significant cost to run Fidelity’s systems, a cost that benefits other fund managers who sell through the Fidelity platform. Why shouldn’t Fidelity be compensated ?

Fidelity is known in the industry to have among the largest IT groups, with a huge budget. All the discussions here about moving to Fidelity, are a result of their relative investment in customer service. Why should they hold your xyz fund portfolio with no Fido funds in it, without compensation ?

Disclosure, I do not work for Fido, but at a competitor that does not have the services they have. I am aware of their superior service and tech, and what it costs them.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by GoldStar »

No impact to me. I hold fidelity funds with fidelity that have zero expenses - no oops here.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by fwellimort »

Moral of story: Buy Fidelity funds at Fidelity. Buy Vanguard funds at Vanguard. Buy Schwab funds at Schwab.
Don't buy Vanguard funds from Fidelity. There will be extra fees (but I thought this was well known? Fidelity's UI is pretty upfront with that).

I don't think this really means much for Fidelity users here.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Jack FFR1846 »

So the oops is what for my Zero fund FZROX that I've reported on since splitting my equity position in half at Fidelity? From what I can see.....nothing. Today's report:

FSKAX: $333,462.46
FZROX: $333,593.65
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Ferdinand2014
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Ferdinand2014 »

If I understand correctly, the accusation is fees for services charged by Fidelity to outside vendor investment companies to gain access to Fidelity funds with the outside vendors having to decide for themselves whether they pass fees on to the customer or absorb them?

In any case, no concerns from my end. Thanks for the info, but no oops here. I have been very happy with Fido fees, choices, website and customer service. I own FXAIX (Fidelity 500 index fund) in my own Fido account. They charge 1.5 basis points and the annual return of the fund over a total 10 year period is within 1 basis point of the returns of the S&P 500. Also, reason 1001 why I like S&P 500 index fund. Loads of data to make sure your index fund is on target and doing what it intends. I also own 3-529 plans, a child Roth IRA and several brokerage taxable accounts. All work well as advertised.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by SlowMovingInvestor »

I'm a little confused. It seems like fund shareholders can tell their overall expense ratio, they just don't know how much of that is going back to Fido.

I know many years ago lots of personal finance columnists used to make a big todo about saying -- don't select funds with 12b-1 fees, but that never made any sense to me. Expense ratio is expense ratio -- how it's broken down is irrelevant to me.

I have wondered about ETFs that are available commission free at a brokerage. Blackrock and others do seem to pay Fido for this, but again I look at overall expense ratio, liquidity etc. of an ETF, not how the expense ratio (which is very small for AGG, ITOT etc.) is broken down.
Last edited by SlowMovingInvestor on Wed Feb 27, 2019 8:01 am, edited 1 time in total.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by SmileyFace »

RickBoglehead wrote: Wed Feb 27, 2019 5:58 am For those praising Fido over VG, oops...
How do you draw this conclusion? In the same manner I didn't pull all my money from Vanguard when I read an interview with Bogle in Time magazine (shortly after he stepped down as Vanguard CEO) criticizing Vanguard for no longer publicizing Executive pay I don't see some morale reason here to step away from Fidelity and there is certainly no financial one.
Outside a rare case; I'd think there is NOT an "oops" here for Bogleheads. 401K arrangements aside (which can't be controlled by individuals), most Bogleheads buy low-cost (or zero cost) Fidelity Funds from Fidelity (or Vanguard funds from Vanguard or Schwab funds from Schwab, etc) so this article has no impact.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by stan1 »

Everyone wondered how Fidelity could afford to offer Zero Fee funds. The answer was someone else is paying: someone is buying higher expense ratio funds, paying insurance commissions, receiving low interest paid on cash balances, not getting a fair share of securities lending revenue, etc.

This discloses that the "someone else" includes non-Fidelity mutual fund companies like Eaton Vance or PIMCO whose products are available on the Fidelity FundsNetwork platform. Of course they eventually pass those costs back to their customers and that's not being disclosed as a 12b-1 distribution fee so the question is whether it should be. The article doesn't get into this but I'd expect Fidelity would argue that an infrastructure fee is different than a product placement fee.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by ruralavalon »

The part I found interesting is that the fee is imposed on low cost share classes used in retirement plans, and is not disclosed to either investors or plan sponsors.
The Wall Street journal wrote:The infrastructure fee is levied on lower-cost share classes such as those aimed at retirement accounts. . . . .

. . . . .

The issue with the fee is whether it is adequately disclosed to investors and to plan sponsors overseeing retirement accounts, securities lawyers said. Fidelity’s insistence on confidentiality about the amounts funds pay in infrastructure fees suggests investors who ultimately foot these bills may not be apprised of them.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by leeks »

What you describe Fidelity doing sounds reasonable enough to me. Their services have a cost. Ultimately those choosing to purchase non-Fidelity funds via Fidelity are paying for this.

Should it be disclosed in a different way so investors holding the funds would realize that they could get them cheaper directly from the other fund company? Maybe, but it doesn't sound evil.

Most would probably do better just switching to a similar Fidelity fund, which I'm guessing is what Fidelity would suggest when you talk to Fidelity reps. So I don't see a scam.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Pete12 »

This doesn’t surprise me one bit.

As an example my wife’s 401k at work is with Fidelity but she is invested in a Vanguard target date index fund.

The fund itself invests in the Vanguard total stock and total bond market institutional plus funds which themselves have a blended expense ratio of about 0.04% based on the asset allocation according to my calculations.

However the expense ratio of the target date fund is 0.06%.

So someone is creaming off 0.02%, whether it’s Vanguard or Fidelity I have no idea. But it’s there. Can’t do anything about it and it’s a small amount for us, but it must add up to big bucks across the whole population.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by autolycus »

ruralavalon wrote: Wed Feb 27, 2019 8:19 am The part I found interesting is that the fee is imposed on low cost share classes used in retirement plans, and is not disclosed to either investors or plan sponsors.
The Wall Street journal wrote:The infrastructure fee is levied on lower-cost share classes such as those aimed at retirement accounts. . . . .

. . . . .

The issue with the fee is whether it is adequately disclosed to investors and to plan sponsors overseeing retirement accounts, securities lawyers said. Fidelity’s insistence on confidentiality about the amounts funds pay in infrastructure fees suggests investors who ultimately foot these bills may not be apprised of them.
All discussion of this news is pointless unless it takes into account the full context, which you touch on. This news isn't about Fidelity's general business practices. This news is about their business practices related to ERISA-covered pension plans. It's a significant and important distinction.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by retiringwhen »

This article is evidence that Fidelity is right, their business model is failing. We are in the early days of the death of the mutual fund supermarket model. The only problem here is transparency.

I would hate to be a second or third tier player in the mutual fund market place. The future is bleak as the cost of delivering service is going be harder and harder to complete with the fund complexes.

One more reason why ETFs are the future. It will separate the costs more cleanly although there will still be the problem of some ETF providers paying for space on the brokerage platforms and getting free trades vs. the per trade fees, but I think that can be a clean thing if the transparency issue is addressed.

How all this works out in the retirement plans is going to be interesting. I am wondering if a new round of sunshine is about to be let in on a smarmy part of the business. I can't imagine that this type of fee is unique to Fidelity. I am sure many other 401(k) and related providers have some sort of back-channel fees. If not, it is dirty of Fidelity to hide these fees.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Corgitodd »

Wonder how this impacts Fidelity’s no cost HSA?
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by SlowMovingInvestor »

retiringwhen wrote: Wed Feb 27, 2019 10:23 am This article is evidence that Fidelity is right, their business model is failing. We are in the early days of the death of the mutual fund supermarket model.
Fidelity had a pretty good quarter, so I don't think they are failing. Fidelity is a megalith with lots of business lines: MF, discount brokerage, wealth management, capital markets, 401k administration etc.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by retiringwhen »

SlowMovingInvestor wrote: Wed Feb 27, 2019 10:34 am
retiringwhen wrote: Wed Feb 27, 2019 10:23 am This article is evidence that Fidelity is right, their business model is failing. We are in the early days of the death of the mutual fund supermarket model.
Fidelity had a pretty good quarter, so I don't think they are failing. Fidelity is a megalith with lots of business lines: MF, discount brokerage, wealth management, capital markets, 401k administration etc.
I didn't say Fidelity is failing, I agree. Their mutual fund supermarket model (and BTW, Schwab's and TD's) is failing. They are trying to shore up the supports for it now while they work out the kinks for the replacements. TD and Schwab are in much more precarious situations.

I think we are in the analogous period of when weblogs were big, but starting to get aggregated through the various aggregation sites, while Facebook began to build an alternative walled-garden..... Customer capture is becoming the game and the Zero funds were the major salvo in the past 12mos. in that direction. Once you have a captured customer, you can start to upsell and harvest new sources of revenue.

BTW, we can all thank Vanguard and Jack Bogle this outcome. It all is happening because Vanguard will not pay the croupier fees for the Supermarkets.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by retiringwhen »

Pete12 wrote: Wed Feb 27, 2019 10:08 am This doesn’t surprise me one bit.

As an example my wife’s 401k at work is with Fidelity but she is invested in a Vanguard target date index fund.

The fund itself invests in the Vanguard total stock and total bond market institutional plus funds which themselves have a blended expense ratio of about 0.04% based on the asset allocation according to my calculations.

However the expense ratio of the target date fund is 0.06%.

So someone is creaming off 0.02%, whether it’s Vanguard or Fidelity I have no idea. But it’s there. Can’t do anything about it and it’s a small amount for us, but it must add up to big bucks across the whole population.
What is the symbol and/or full name for the Vanguard TD Fund? I would love to read their prospectus / annual report... Is it an Institutional share class or a CIT? My 401(k) has a CIT Target Date funds and they are listed 0.05% ER.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by ruralavalon »

SlowMovingInvestor wrote: Wed Feb 27, 2019 10:34 am
retiringwhen wrote: Wed Feb 27, 2019 10:23 am This article is evidence that Fidelity is right, their business model is failing. We are in the early days of the death of the mutual fund supermarket model.
Fidelity had a pretty good quarter, so I don't think they are failing. Fidelity is a megalith with lots of business lines: MF, discount brokerage, wealth management, capital markets, 401k administration etc.
Nevertheless Fidelity has apparently said that its business model is "broken", which I take to mean is no longer viable.
The Wall Street Journal wrote:Fidelity also stated in the document that its traditional business model is “broken” and characterized the infrastructure fee as a solution to that problem
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Ged »

ruralavalon wrote: Wed Feb 27, 2019 10:45 am
SlowMovingInvestor wrote: Wed Feb 27, 2019 10:34 am
retiringwhen wrote: Wed Feb 27, 2019 10:23 am This article is evidence that Fidelity is right, their business model is failing. We are in the early days of the death of the mutual fund supermarket model.
Fidelity had a pretty good quarter, so I don't think they are failing. Fidelity is a megalith with lots of business lines: MF, discount brokerage, wealth management, capital markets, 401k administration etc.
Nevertheless Fidelity has apparently said that its business model is "broken", which I take to mean is no longer viable.
The Wall Street Journal wrote:Fidelity also stated in the document that its traditional business model is “broken” and characterized the infrastructure fee as a solution to that problem
The question is what they mean by traditional business model. It could simply mean that the old high fee mutual fund model from the days of Peter Lynch is broken.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Pete12 »

retiringwhen wrote: Wed Feb 27, 2019 10:45 am What is the symbol and/or full name for the Vanguard TD Fund? I would love to read their prospectus / annual report... Is it an Institutional share class or a CIT? My 401(k) has a CIT Target Date funds and they are listed 0.05% ER.
It is a CIT so there is no ticker symbol. The full name is Vanguard Target Retirement 2030 Trust Plus.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by ruralavalon »

Ged wrote: Wed Feb 27, 2019 10:55 am
ruralavalon wrote: Wed Feb 27, 2019 10:45 am
SlowMovingInvestor wrote: Wed Feb 27, 2019 10:34 am
retiringwhen wrote: Wed Feb 27, 2019 10:23 am This article is evidence that Fidelity is right, their business model is failing. We are in the early days of the death of the mutual fund supermarket model.
Fidelity had a pretty good quarter, so I don't think they are failing. Fidelity is a megalith with lots of business lines: MF, discount brokerage, wealth management, capital markets, 401k administration etc.
Nevertheless Fidelity has apparently said that its business model is "broken", which I take to mean is no longer viable.
The Wall Street Journal wrote:Fidelity also stated in the document that its traditional business model is “broken” and characterized the infrastructure fee as a solution to that problem
The question is what they mean by traditional business model. It could simply mean that the old high fee mutual fund model from the days of Peter Lynch is broken.
Given the context of the Department of Labor action under ERISA, this refers to Fidelity's large business in 401k administration.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by LadyGeek »

The WSJ article has a paywall. Similar articles without a paywall can be found via Google "Government Probes Fidelity Over Obscure Mutual-Fund Fees".
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Ferdinand2014 »

Pete12 wrote: Wed Feb 27, 2019 10:08 am This doesn’t surprise me one bit.

As an example my wife’s 401k at work is with Fidelity but she is invested in a Vanguard target date index fund.

The fund itself invests in the Vanguard total stock and total bond market institutional plus funds which themselves have a blended expense ratio of about 0.04% based on the asset allocation according to my calculations.

However the expense ratio of the target date fund is 0.06%.

So someone is creaming off 0.02%, whether it’s Vanguard or Fidelity I have no idea. But it’s there. Can’t do anything about it and it’s a small amount for us, but it must add up to big bucks across the whole population.
Thats a great ER. My wifes 403b is dog poo. The lowest ER is an S&P 500 index fund charging 20 basis points. Every other option is actively managed and over 100 basis points. Lincoln Financial.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Pete12 »

Ferdinand2014 wrote: Wed Feb 27, 2019 6:02 pm Thats a great ER. My wifes 403b is dog poo. The lowest ER is an S&P 500 index fund charging 20 basis points. Every other option is actively managed and over 100 basis points. Lincoln Financial.
I really shouldn't complain, it's a very decent option for us....
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by nisiprius »

beyou wrote: Wed Feb 27, 2019 6:57 am There is a significant cost to run Fidelity’s systems, a cost that benefits other fund managers who sell through the Fidelity platform. Why shouldn’t Fidelity be compensated?
But why shouldn't that compensation be disclosed?
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Ferdinand2014 »

Pete12 wrote: Wed Feb 27, 2019 6:12 pm
Ferdinand2014 wrote: Wed Feb 27, 2019 6:02 pm Thats a great ER. My wifes 403b is dog poo. The lowest ER is an S&P 500 index fund charging 20 basis points. Every other option is actively managed and over 100 basis points. Lincoln Financial.
I really shouldn't complain, it's a very decent option for us....
Thankfully the vast bulk of our accounts: my corporate SEP-IRA, our brokerage and 529's are with Fido. My wife's 403b is by far the smallest portion of our retirement. We just put 100% in the S&P 500 index with hers and balance out our allocation with my Fido accounts.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by beyou »

nisiprius wrote: Wed Feb 27, 2019 6:15 pm
beyou wrote: Wed Feb 27, 2019 6:57 am There is a significant cost to run Fidelity’s systems, a cost that benefits other fund managers who sell through the Fidelity platform. Why shouldn’t Fidelity be compensated?
But why shouldn't that compensation be disclosed?
“you can’t handle the truth” ;-)

Seriously, why do you care, they are making the funds available to buy or not buy, nobody is making you buy them. And the ER is documented, how they arrived at it and how it is paid to the parties is not relevant except when you are being steered into a specific investment. Ideally they would have all funds to choose from, a great choice for you.

Anyone who has looked at a fund marketplace, on Schwab, Etrade, Fido etc, knows they dont all have the same list of funds. Ever wonder why ? It is not a recommended list. This is just lawyers looking to enrich themselves, not you.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by retiringwhen »

beyou wrote: Wed Feb 27, 2019 11:11 pm
nisiprius wrote: Wed Feb 27, 2019 6:15 pm
beyou wrote: Wed Feb 27, 2019 6:57 am There is a significant cost to run Fidelity’s systems, a cost that benefits other fund managers who sell through the Fidelity platform. Why shouldn’t Fidelity be compensated?
But why shouldn't that compensation be disclosed?
“you can’t handle the truth” ;-)

Seriously, why do you care, they are making the funds available to buy or not buy, nobody is making you buy them. And the ER is documented, how they arrived at it and how it is paid to the parties is not relevant except when you are being steered into a specific investment. Ideally they would have all funds to choose from, a great choice for you.

Anyone who has looked at a fund marketplace, on Schwab, Etrade, Fido etc, knows they dont all have the same list of funds. Ever wonder why ? It is not a recommended list. This is just lawyers looking to enrich themselves, not you.
I disagree, the text of the article says that these fees were NOT disclosed. That is the entire problem, transparency.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by autolycus »

beyou wrote: Wed Feb 27, 2019 11:11 pmThis is just lawyers looking to enrich themselves, not you.
No, this is the US DOL enforcing ERISA, which has explicit fiduciary duties, including a well-defined set of transactions that cannot occur with a party-in-interest unless the transaction meets an exemption.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Retired1809 »

Is this really "news?" I thought that most brokerage platforms depended on "revenue sharing" arrangements with mutual fund issuers. I believe that I've seen disclosures in fund prospecti.

I read the article yesterday by Gretchen Morgenstern and had the same thought then. And today I was surprised to see the WSJ cover the story as well.

The fee 0.15% fee is assessed on mutual fund companies and is a part of the disclosed expense ratio.

Generally, I've find that mutual fund companies that "do not pay to play" will not be NTF.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by beyou »

retiringwhen wrote: Thu Feb 28, 2019 6:03 am
beyou wrote: Wed Feb 27, 2019 11:11 pm
nisiprius wrote: Wed Feb 27, 2019 6:15 pm
beyou wrote: Wed Feb 27, 2019 6:57 am There is a significant cost to run Fidelity’s systems, a cost that benefits other fund managers who sell through the Fidelity platform. Why shouldn’t Fidelity be compensated?
But why shouldn't that compensation be disclosed?
“you can’t handle the truth” ;-)

Seriously, why do you care, they are making the funds available to buy or not buy, nobody is making you buy them. And the ER is documented, how they arrived at it and how it is paid to the parties is not relevant except when you are being steered into a specific investment. Ideally they would have all funds to choose from, a great choice for you.

Anyone who has looked at a fund marketplace, on Schwab, Etrade, Fido etc, knows they dont all have the same list of funds. Ever wonder why ? It is not a recommended list. This is just lawyers looking to enrich themselves, not you.
I disagree, the text of the article says that these fees were NOT disclosed. That is the entire problem, transparency.
I work in the industry. There are far worse things that go on...this would not stop me from opening an account at Fidelity.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by SoonerD »

I'm posting to follow this thread. I don't know how to save as such without posting.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Fallible »

ruralavalon wrote: Wed Feb 27, 2019 8:19 am The part I found interesting is that the fee is imposed on low cost share classes used in retirement plans, and is not disclosed to either investors or plan sponsors.
The Wall Street journal wrote:The infrastructure fee is levied on lower-cost share classes such as those aimed at retirement accounts. . . . .
. . . . .
The issue with the fee is whether it is adequately disclosed to investors and to plan sponsors overseeing retirement accounts, securities lawyers said. Fidelity’s insistence on confidentiality about the amounts funds pay in infrastructure fees suggests investors who ultimately foot these bills may not be apprised of them.
Yes, this is the gist of it for investors. Also of special interest, this from the article: "The infrastructure fee appears to be a way for Fidelity to make up for revenue the firm has lost as a result of investors flocking to lower-cost mutual funds."
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by LadyGeek »

SoonerD wrote: Thu Feb 28, 2019 4:37 pm I'm posting to follow this thread. I don't know how to save as such without posting.
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beyou
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by beyou »

Note part of Fidelity's defense is that the fees are related to all fund business, not just 401Ks, not related to ERISA disclosures.

From a pure standpoint of equity with other industry practices, anyone who watches Shark Tank has heard discussions about getting "shelf space" at major retailers, debating the benefits/costs of doing so. Some manufacturers/wholesalers have to sell below cost or pay fees to get on a shelf in a major store. Do you know that when you are shopping at Walmart how much a product manufacturer is paying to play at Walmart ? And why do you care ? Consumers need to evaluate the products they buy and the value proposition.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by ruralavalon »

beyou wrote: Thu Feb 28, 2019 6:12 pm Note part of Fidelity's defense is that the fees are related to all fund business, not just 401Ks, not related to ERISA disclosures.

From a pure standpoint of equity with other industry practices, anyone who watches Shark Tank has heard discussions about getting "shelf space" at major retailers, debating the benefits/costs of doing so. Some manufacturers/wholesalers have to sell below cost or pay fees to get on a shelf in a major store. Do you know that when you are shopping at Walmart how much a product manufacturer is paying to play at Walmart ? And why do you care ? Consumers need to evaluate the products they buy and the value proposition.
For me the attempted secrecy is a red flag, arouses suspicion, in light of the the financial sevice industry's history of hiding fees that do impact inveators.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by cheezit »

Is there any evidence in the article that the fees in question were included in the expense ratios of funds?
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by beyou »

ruralavalon wrote: Fri Mar 01, 2019 9:53 am
beyou wrote: Thu Feb 28, 2019 6:12 pm Note part of Fidelity's defense is that the fees are related to all fund business, not just 401Ks, not related to ERISA disclosures.

From a pure standpoint of equity with other industry practices, anyone who watches Shark Tank has heard discussions about getting "shelf space" at major retailers, debating the benefits/costs of doing so. Some manufacturers/wholesalers have to sell below cost or pay fees to get on a shelf in a major store. Do you know that when you are shopping at Walmart how much a product manufacturer is paying to play at Walmart ? And why do you care ? Consumers need to evaluate the products they buy and the value proposition.
For me the attempted secrecy is a red flag, arouses suspicion, in light of the the financial sevice industry's history of hiding fees that do impact inveators.
All operations of a business are nonpublic unless there is specific regulation to require disclosure. Do you need to know how Walmart selects products for their shelves, how much they pay or are paid by vendors, how much they pay employees, to shop there ?

Matter of opinion if these particular costs are required to disclose. They are not part of your direct cost, why do you need to know ? How would this affect your investing decisions if you did know ?

Full disclosure, I do not work for Fidelity. But fair is fair. You can change rules but not retroactively, and I dont see a reason to change the rule anyway.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Fallible »

cheezit wrote: Fri Mar 01, 2019 10:26 am Is there any evidence in the article that the fees in question were included in the expense ratios of funds?
In the article, some companies among those available on the Fidelity platform were asked whether they disclose the company's infrastructure fee to their clients: a spokeswoman for one "declined to comment."; a spokeswoman for another said the firm provides "extensive detail about all the fees related to the funds we manage."; and a spokeswoman for another said the "company doesn't talk about its fee arrangements it maintains with Fidelity or any other third-party platform."

The article goes on to quote a former attorney for the SEC (who now advises pensions on asset management): "Intermediaries and mutual funds are far more candid in their agreements between each other than they are in disclosures to plan sponsors and investors."

If you read further, you'll see the Fidelity infrastructure fee is the subject of a lawsuit filed by a participant in a retirement plan.
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by SlowMovingInvestor »

cheezit wrote: Fri Mar 01, 2019 10:26 am Is there any evidence in the article that the fees in question were included in the expense ratios of funds?
As I see it, the participant isn't paying more than the expense ratio, so why should he/she care ?
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by Lyrrad »

SlowMovingInvestor wrote: Sat Mar 02, 2019 10:47 am
cheezit wrote: Fri Mar 01, 2019 10:26 am Is there any evidence in the article that the fees in question were included in the expense ratios of funds?
As I see it, the participant isn't paying more than the expense ratio, so why should he/she care ?
I think it's alleged that the fee should have been disclosed as a distribution charge, even if it was included in the expense ratio. The article states that the fee was 0.15% of all assets of the company, not just those at Fidelity, so it seems that all fund participants were paying the fee.

The article lists three ways that laws might be violated:
- The fee is listed as an infrastructure charge, and not a distribution charge. "When a fund pays a fee that aims to result in the sale of fund shares, either directly or indirectly, securities laws require it to be part of what is known as a 12b-1 plan and to be disclosed to investors."
- Funds can't make "payments that are ostensibly made for some other purpose, but which, based on the facts and circumstances, are used in ways that finance distribution"
- "Sponsors of retirement plans must also disclose all payments made related to the plans."
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Re: Fidelity’s Fees on Low-Cost Funds Eyed in Government Probe - oops...

Post by LadyGeek »

I removed several earlier posts challenging the bias of government lawyers. The discussion was getting derailed, please stay focused on the investing aspects.
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