Fidelity - No fiduciary policy?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
Speckles
Posts: 22
Joined: Sun Jul 21, 2019 1:36 am

Fidelity - No fiduciary policy?

Post by Speckles » Fri Sep 27, 2019 1:45 pm

Bogleheads,

I'm surprised and disappointed on Fidelity's lack of transparency regarding fiduciary responsibilities to clients.

1. Today I was told that Fidelity does not have a written policy on when their representatives are acting in a fiduciary capacity and when they are not. Is this typical?

2. At first I was told that Fidelity acts in a fiduciary capacity when providing "any advice or guidance". Later in the conversation I was told that this does not apply to all calls to Fidelity, but only specific meetings/calls with their financial consultants about portfolio management (paraphrasing here).

3. I asked if I could trust that their trading software is programmed to a fiduciary standard that ensures they are acting in my best interest. I was not given a straight answer.

As someone who is not an investment professional, how do I know when a brokerage is acting in my best interest during calls and trades?

Frankly I'm stunned. I expected more of Fidelity. Before selecting a brokerage, I asked specifically whether they act in a fiduciary capacity and I was given an unqualified "YES". Silly me, I believed it. Apparently they meant that one conversation.

Any advice on how to protect myself going forward? What do bogleheads watch out for? Any words to the wise?

Thanks, Speckles

Ferdinand2014
Posts: 830
Joined: Mon Dec 17, 2018 6:49 pm

Re: Fidelity - No fiduciary policy?

Post by Ferdinand2014 » Fri Sep 27, 2019 1:58 pm

I have been with Fidelity for 22 years and have been very happy. I have never used Fidelity in any capacity that required investing advice as I make my own decisions, so have not been concerned about a fiduciary policy. I appreciate Fidelity for there depth of products including 53 plus super low cost index funds, ease of use of online platform, 24 hour excellent customer service, cash management accounts, brick and mortar building and complete account product lineup including in my case SEP, IRA, 529, HSA and various brokerage accounts. If you are looking for someone to manage your accounts then perhaps Vanguard PAS might be the way to go although I have no idea if they follow a fiduciary standard? I do know they are economical in terms of management cost.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

bikechuck
Posts: 564
Joined: Sun Aug 16, 2015 9:22 pm

Re: Fidelity - No fiduciary policy?

Post by bikechuck » Fri Sep 27, 2019 2:04 pm

They (Fidelity) appropriately have to be very careful about their responses. Artificial intelligence has come a long way but I doubt that it is possible for Fidelity or anyone else to program robo adviser software (if that is what you mean by their "trading software") to ensure it meets a fiduciary standard.

I do not invest with Fidelity but that is more of a historical accident than anything else. I think that Fidelity, Schwab and Vanguard are all good companies. My wife's company used Schwab for their retirement pan and she stayed with them after retirement. I moved most of my retirement funds to Vanguard but I would likely be equally happy with Fidelity.
Last edited by bikechuck on Fri Sep 27, 2019 2:09 pm, edited 2 times in total.

DaftInvestor
Posts: 4781
Joined: Wed Feb 19, 2014 10:11 am

Re: Fidelity - No fiduciary policy?

Post by DaftInvestor » Fri Sep 27, 2019 2:05 pm

As a die-hard Boglehead I wouldn't take investment advise from anyone anyway so I have never even considered whether or not there is a fiduciary policy at any of the places I have done business with. I simply go with low-cost index funds - and Fidelity has a lot to choose from. Fidelity has reached out to me a few times but I always tell them I am all set (they stopped reaching out once I asked them to stop calling). Other than that - I've never had the need to talk to anyone.

afan
Posts: 4393
Joined: Sun Jul 25, 2010 4:01 pm

Re: Fidelity - No fiduciary policy?

Post by afan » Fri Sep 27, 2019 2:13 pm

I did not think brokers act as fiduciaries. Neither Fidelity nor anyone else.
It is possible that some parts of Fidelity, a very large organization, has employees whose jobs conform to a fiduciary standard. Perhaps when they are the advisor for employer retirement funds, for example.

Brokers are not held to this standard and been quite clear that will not perform in that way.

If you are using Fidelity for advice, as opposed to trading, then it would depend on the relationship you have established. They do offer paid money managers. I don't know whether they are part of an RIA or function as fiduciaries.

It is not realistic to expect that all financial firms always work as fiduciaries. That is not the way the industry operates.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

alex_686
Posts: 5097
Joined: Mon Feb 09, 2015 2:39 pm

Re: Fidelity - No fiduciary policy?

Post by alex_686 » Fri Sep 27, 2019 2:20 pm

The are issues with acting like a fiduciary. Once you announce that you are acting like a fiduciary you have to act like a fiduciary. If you are a fiduciary and you call saying you want to purchase fund X, you just can't let the client purchase fund X. You have to figure out how that purchase fits into their entire investment plan. Risk tolerance, 401k holdings at their employer, etc. You have to go the whole 9 yards. You have to offer gold plated service. etc. I have worked in compliance. The standards are high and the paperwork is long. So what Fidelity is telling you is standard for the industry.

So point 2 makes total sense. If you are acting in a fiduciary role it takes about an hour to prep for a client meeting.

Point 3 is way off base. You are interacting with trading software, not seeking personalized advice. Trade execution is governed by "best execution" regulations for all clients and I can't see how the fiduciary standard would interact with trading software.

increment
Posts: 187
Joined: Tue May 15, 2018 2:20 pm

Re: Fidelity - No fiduciary policy?

Post by increment » Fri Sep 27, 2019 2:29 pm

alex_686 wrote:
Fri Sep 27, 2019 2:20 pm
The[re] are issues with acting like a fiduciary. Once you announce that you are acting like a fiduciary you have to act like a fiduciary. If you are a fiduciary and you call saying you want to purchase fund X, you just can't let the client purchase fund X. You have to figure out how that purchase fits into their entire investment plan. Risk tolerance, 401k holdings at their employer, etc. You have to go the whole 9 yards. You have to offer gold plated service. etc.
It looks like you can open a Fidelity account with $2500. Here many are appalled when people are charged an entire 1% per year for financial services. Should anyone be surprised that Fidelity is not interested in acting as a fiduciary for just $25/year?

SpaethCo
Posts: 188
Joined: Thu Jan 14, 2016 12:58 am

Re: Fidelity - No fiduciary policy?

Post by SpaethCo » Fri Sep 27, 2019 2:34 pm

increment wrote:
Fri Sep 27, 2019 2:29 pm
It looks like you can open a Fidelity account with $2500.
They even eliminated that barrier. You can open an account without funding it at all now.

https://www.fidelity.com/why-fidelity/pricing-fees

samsdad
Posts: 745
Joined: Sat Jan 02, 2016 6:20 pm

Re: Fidelity - No fiduciary policy?

Post by samsdad » Fri Sep 27, 2019 2:37 pm

I agree with The United States Court of Appeals for the Fifth Circuit:
[O]n March 15, 2018—The Fifth Circuit Court of Appeals, based in New Orleans, vacated the fiduciary rule in a 2-to-1 decision, saying it constituted "unreasonableness," and that the DOL's implementation of the rule constitutes "an arbitrary and capricious exercise of administrative power."
Investopedia's entry on the fiduciary rule

You're looking for some stranger (here, Fidelity) to look out for your best interest. I think that is simply naive. It's one thing to expect that they execute a trade just as you've asked, etc., and it's wholly another to expect them to look after your best interest.
Fiduciary is a much higher level of accountability than the suitability standard previously required of financial salespersons, such as brokers, planners, and insurance agents, who work with retirement plans and accounts. "Suitability" means that as long as an investment recommendation meets a client's defined need and objective, it is deemed appropriate.

Under a fiduciary standard, financial professionals are legally obligated to put their client’s best interests first, rather than simply finding “suitable” investments.
1. Please identify and explain what your best interests currently are and what they will be 1 year, 5 years, 10 years, and 20 years from now. Don't omit anything when reporting on what your crystal ball says.

2. Please explain how Fidelity is supposed to be on the hook if you omitted something important in your description of who you are, what you need, why you need it, etc.

3. Please explain how some implementation of the fiduciary rule is not going to make it more expensive for the rest of us who don't want or need the extra work required of Fidelity to serve your fiduciary needs. If it is going to make it more expensive for the rest of us, shouldn't you be forced to compensate us for the added expense?

4. Please explain why Fidelity or other brokerage houses should be held to a fiduciary standard, as opposed to your hardware store, your auto dealer, your favorite restaurant, etc. Aren't you simply doing business with all of the above? Here's what Investopedia says the fiduciary rule would do:
Under a fiduciary standard, financial professionals are legally obligated to put their client’s best interests first, rather than simply finding “suitable” investments. The new rule would have therefore eliminated many commission structures that govern the industry.

Advisors who wished to continue working on the commission would have needed to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as the advisor receiving a higher commission or special bonus for selling a certain product). This was to guarantee that the advisor was working unconditionally in the best interest of the client. All compensation that was paid to the fiduciary was required to be clearly spelled out as well.
Should the hardware store have to disclose any and all "conflicts of interest" it might have when selling you Brand A vs. Brand B hammer? If Brand A hammer nets them a "higher commission or special bonus" (aka, profit), what business is it of yours? Do you really think you should be informed of "all compensation that was paid" to the hardware store (aka, profit)? By the way, why is making a profit presumed to be a conflict of interest these days?

I own my own business, and yes, believe it or not, I make more money on product A vs product B. Why is that your business? Do you think that I'm entitled to a net profit in exchange for the risk I'm taking as an entrepreneur?

I think the fiduciary rule is more of the typical "nanny state" expectations that some people have regarding the relationship between the state and the individual. Some people have that expectation, others abhor it. I personally think it is antithetical to the concept of a free market as a whole.

Godot
Posts: 245
Joined: Fri Jun 08, 2018 3:44 pm
Location: Little Beirut

Re: Fidelity - No fiduciary policy?

Post by Godot » Fri Sep 27, 2019 2:44 pm

samsdad wrote:
Fri Sep 27, 2019 2:37 pm
I agree with The United States Court of Appeals for the Fifth Circuit:
[O]n March 15, 2018—The Fifth Circuit Court of Appeals, based in New Orleans, vacated the fiduciary rule in a 2-to-1 decision, saying it constituted "unreasonableness," and that the DOL's implementation of the rule constitutes "an arbitrary and capricious exercise of administrative power."
Investopedia's entry on the fiduciary rule

You're looking for some stranger (here, Fidelity) to look out for your best interest. I think that is simply naive. It's one thing to expect that they execute a trade just as you've asked, etc., and it's wholly another to expect them to look after your best interest.
Fiduciary is a much higher level of accountability than the suitability standard previously required of financial salespersons, such as brokers, planners, and insurance agents, who work with retirement plans and accounts. "Suitability" means that as long as an investment recommendation meets a client's defined need and objective, it is deemed appropriate.

Under a fiduciary standard, financial professionals are legally obligated to put their client’s best interests first, rather than simply finding “suitable” investments.
1. Please identify and explain what your best interests currently are and what they will be 1 year, 5 years, 10 years, and 20 years from now. Don't omit anything when reporting on what your crystal ball says.

2. Please explain how Fidelity is supposed to be on the hook if you omitted something important in your description of who you are, what you need, why you need it, etc.

3. Please explain how some implementation of the fiduciary rule is not going to make it more expensive for the rest of us who don't want or need the extra work required of Fidelity to serve your fiduciary needs. If it is going to make it more expensive for the rest of us, shouldn't you be forced to compensate us for the added expense?

4. Please explain why Fidelity or other brokerage houses should be held to a fiduciary standard, as opposed to your hardware store, your auto dealer, your favorite restaurant, etc. Aren't you simply doing business with all of the above? Here's what Investopedia says the fiduciary rule would do:
Under a fiduciary standard, financial professionals are legally obligated to put their client’s best interests first, rather than simply finding “suitable” investments. The new rule would have therefore eliminated many commission structures that govern the industry.

Advisors who wished to continue working on the commission would have needed to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as the advisor receiving a higher commission or special bonus for selling a certain product). This was to guarantee that the advisor was working unconditionally in the best interest of the client. All compensation that was paid to the fiduciary was required to be clearly spelled out as well.
Should the hardware store have to disclose any and all "conflicts of interest" it might have when selling you Brand A vs. Brand B hammer? If Brand A hammer nets them a "higher commission or special bonus" (aka, profit), what business is it of yours? Do you really think you should be informed of "all compensation that was paid" to the hardware store (aka, profit)? By the way, why is making a profit presumed to be a conflict of interest these days?

I own my own business, and yes, believe it or not, I make more money on product A vs product B. Why is that your business? Do you think that I'm entitled to a net profit in exchange for the risk I'm taking as an entrepreneur?

I think the fiduciary rule is more of the typical "nanny state" expectations that some people have regarding the relationship between the state and the individual. Some people have that expectation, others abhor it. I personally think it is antithetical to the concept of a free market as a whole.
A.The US does not have a free market economy. B. Hard to see how this thread will survive moderators.
Estragon: I can't go on like this. | Vladimir: That's what you think. | ― Samuel Beckett, Waiting for Godot

alex_686
Posts: 5097
Joined: Mon Feb 09, 2015 2:39 pm

Re: Fidelity - No fiduciary policy?

Post by alex_686 » Fri Sep 27, 2019 2:51 pm

increment wrote:
Fri Sep 27, 2019 2:29 pm
It looks like you can open a Fidelity account with $2500. Here many are appalled when people are charged an entire 1% per year for financial services. Should anyone be surprised that Fidelity is not interested in acting as a fiduciary for just $25/year?
Yeah, you may have said this better than I. I did work in this area and we figured that being a fiduciary would cost at a minimum $1,000 per client. Now, I was working at a full service brokerage firm so the cost structure was slightly different than Fidelity, but it can't be that far off.

samsdad
Posts: 745
Joined: Sat Jan 02, 2016 6:20 pm

Re: Fidelity - No fiduciary policy?

Post by samsdad » Fri Sep 27, 2019 2:59 pm

Godot wrote:
Fri Sep 27, 2019 2:44 pm
A.The US does not have a free market economy.
“Estragon: we lost our rights?
Vladimir: we got rid of them.”
― Samuel Beckett, Waiting for Godot
B. Hard to see how this thread will survive moderators.
“Vladimir: That passed the time.
Estragon: It would have passed in any case.
Vladimir: Yes, but not so rapidly.”
― Samuel Beckett, Waiting for Godot

Godot
Posts: 245
Joined: Fri Jun 08, 2018 3:44 pm
Location: Little Beirut

Re: Fidelity - No fiduciary policy?

Post by Godot » Fri Sep 27, 2019 3:58 pm

samsdad wrote:
Fri Sep 27, 2019 2:59 pm
Godot wrote:
Fri Sep 27, 2019 2:44 pm
A.The US does not have a free market economy.
“Estragon: we lost our rights?
Vladimir: we got rid of them.”
― Samuel Beckett, Waiting for Godot
B. Hard to see how this thread will survive moderators.
“Vladimir: That passed the time.
Estragon: It would have passed in any case.
Vladimir: Yes, but not so rapidly.”
― Samuel Beckett, Waiting for Godot
:sharebeer
Estragon: I can't go on like this. | Vladimir: That's what you think. | ― Samuel Beckett, Waiting for Godot

afan
Posts: 4393
Joined: Sun Jul 25, 2010 4:01 pm

Re: Fidelity - No fiduciary policy?

Post by afan » Fri Sep 27, 2019 3:59 pm

To get back to the point.
Some parts of the financial services industry function in a fiduciary capacity and some do not. In general, the SEC-regulated part is fiduciary and the FINRA-regulated part is not. There is a "solely incidental" exception that acknowledges that brokers have selling securities as their business, not giving investment advice. Any advice they give is incidental to their work of selling. So they are not required to be fiduciaries.

You should not expect the non fiduciary parts of the industry to behave as fiduciaries.

This topic has received an enormous amount of press, with extended political and legal debates about the borders. Little of this is a matter of opinion among bogleheads.

https://www.sec.gov/news/speech/clayton ... ciary-duty

https://www.financial-planning.com/news ... t-interest

As to your questions about Fidelity, you did not get a simple answer because there is not one.

Whether they are functioning as a fiduciary depends on what they are doing. If they are executing a stock trade for you, no. If you sign on for their paid investment advice, under an RIA arrangement, then yes. For other things, the issue would not come up.
Last edited by afan on Fri Sep 27, 2019 4:15 pm, edited 1 time in total.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

User avatar
nisiprius
Advisory Board
Posts: 39415
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Fidelity - No fiduciary policy?

Post by nisiprius » Fri Sep 27, 2019 4:12 pm

I tried to get this question answered once for Vanguard and I ultimately gave up. The thread is here: How to tell who is bound to a fiduciary standard?"

I was (and still am) irritated by Vanguard's evasive rhetoric, e.g. "Vanguard puts you first in everything we do." I had what I thought was a simple question: so does that mean Vanguard Personal Advisory Services is a fiduciary? I thought I had it cracked when I determined that Vanguard Advisers[sic] Inc. is a registered investment advisor (RIA) and that RIA's must adhere to a fiduciary standard. But no. Because you can be dealing with a firm that is an RIA, but not all of the people in that firm are necessarily bound to a fiduciary standard.

One quasi-answer is that you don't know unless a particular person has given you a signed piece of paper saying they're a fiduciary, and then that only tells you about that one person.

But if you continue with the thread you will see that there's some uncertainty about exactly what it really means to know that you are dealing with someone bound to a fiduciary standard.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

afan
Posts: 4393
Joined: Sun Jul 25, 2010 4:01 pm

Re: Fidelity - No fiduciary policy?

Post by afan » Fri Sep 27, 2019 8:59 pm

Deleted duplicate
Last edited by afan on Fri Sep 27, 2019 9:01 pm, edited 1 time in total.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

afan
Posts: 4393
Joined: Sun Jul 25, 2010 4:01 pm

Re: Fidelity - No fiduciary policy?

Post by afan » Fri Sep 27, 2019 9:00 pm

This is not worth so much angst. You got a good answer in the other thread. Fiduciary is nor a magic wand that assures that all the advice will be perfect. It does not mean the advisor has to find you the least expensive options, even if they come from a competitor. Vanguard typically will have good prices but PAS can put all your money in Vanguard funds without even considering offerings from other companies.
There is someone who posts here regularly who works for an outfit that aggressively promotes its fiduciary standard. It charges high prices and uses funds far more expensive than Vanguard. No problem from a fiduciary POV.

Vanguard PAS is an RIA, so it follows fiduciary requirements. But that means less than some people seem to assume.

Although PAS gives fiduciary advice when it is giving advice that does not mean that everyone at Vanguard is a fiduciary.

There was a firm that markets itself on bogleheads that made much of its fiduciary standard. This firm also sold commissioned products. The same people who provided fiduciary advice could also take off their IAR hats and sell commissioned annuities. They might advise you that an annuity would be a good idea, then sell it to you and collect a commission.

It could be hard to know when you were getting fiduciary advice and when not. This would be a bigger problem if it were more important.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Post Reply