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Fidelity will soon charge a big fee to small advisors

Boston-based custodian is on service crusade and economics need to work

Friday, September 24, 2010 – 3:52 AM by Brooke Southall
Admin:
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Mike Durbin: We’ve very comfortable with the move but as you might imagine, advisors have reacted negatively.

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Mentioned in this article:

Scottrade Advisor Services
Asset Custodian
Top Executive: Brian Stimpfl




Frederick Van Den Abbeel

Frederick Van Den Abbeel

September 24, 2010 — 11:28 AM

Thank you Brooke for a good article. Will be interesting to see if Fidelity, Schwab and the others will also require their customers working with their competing retail side to also pay a quarterly fee if they don’t have enough AUM themselves? Seems logical to me this might also be a possibility given 'economics.’

Laura Kogen

Laura Kogen

September 24, 2010 — 2:27 PM

This makes perfect sense. I’m actually surprised the $10M isn’t higher. For new advisors perhaps they can give a refund if you can end your first year above the minimum. No reason Fido shouldn’t charge a minimum, just like RIAs do.

Mike Di Girolamo

Mike Di Girolamo

September 24, 2010 — 4:33 PM

Broke,

Interesting article but I would like to make one correction relative to fees at Raymond James for smaller relationships through our Investment Advisor Division. For RIAs who custody less than $10 million, we have a $1,000 per month platform access fee and for those with less than $20 million, but more than $10 million held at Raymond James, it is $500 per month.

Stephen Winks

Stephen Winks

September 26, 2010 — 2:16 PM

Fidelity has made a most prescient move in the face of the certainty of regulatory reform. It is making plans to support a much higher level of advisory services support which will transform the industry. Advise is no longer incidental to trade execution, but trade execution is incidental to advice.

Brokers and advisers are largely at the mercy of the support of their b/d or custodian in their ability to be responsive to the needs of their clients. Under Dodd Frank the broker/adviser must act on behalf of the client in the client’s best interest where prior to Dodd-Frank it was a violation of internal compliance protocol for brokers to acknowledge they render advice or have a fiduciaty obligation to act in ther consumer’s best interest. Dodd-Frank fundamentally changes the industry in profound ways. If fiduciary standing of the broker is to be supported and made safe and easy to execute—fiduciary liability must be effectively managed—truely the devil is in the details. This means, the broker and adviser must be properly resourced with (a) prudent processes (asset/liability study, investment policy, portfolio construction and management) tied to statutory documentation to assure the advisers fiduciary duties are being fulfilled, (b) technology which supports continuous comprehensive counsel and transparency in cost and compensation, (c) work flow management tied to a functional division of labor (Adviser, CAO, CIO) so advice is safe, scalable and easy to execute, (d) conflict of interest management (not just disclosure) and (e) expert advisory services support for each of the ten major market segments in which advisers serve. All this requires broker/dealers and custodians to shift their focus to prudent process in response to adding value in the context of client needs, from product distribution in the context of driving commission sales. Fidelity is aligning its pricing structure in preparation of more aggressively supporting advisory services and in the process fills a massive leadership vacuum in advisory services.

The rest of the industry will not know what hit them.

SCW

Roger Hewins

Roger Hewins

April 19, 2011 — 6:45 PM

Unfortunately, they also charge this when you terminate them, as you are moving the assets out to a better custody platform. It’s not right.

PPott

PPott

September 2, 2013 — 8:46 PM

If Mr Winks is correct, and I am not certain that he is, then he appears to be confirming that there is a serious economic cost that must be borne by the smaller investor under the DF fiasco.

Stephen Winks

Stephen Winks

September 3, 2013 — 3:39 PM

PPott,

The entire industry is in transition in terms of the broker’s value proposition, cost structure , margins and professional standing. .The introduction of second opinion technology which makes it easy for consumer’s to understand how all their holdings look as a portfolio materially changes the competitive landscape through transparency.

This will require more broker accountability for recommendations and ongoing responsibilities entailed in fiduciary standing in the consumer’s best interest not presently possible in a brokerage format that affords lesser consumer protections for “retail investors” than all other investors.. This is hardly a fiasco, if you are a consumer.

The economics to the consumer is the level of advice increases exponentially while its cost come down significantly, while the advisor makes as much as 50% more than the broker, all achieved through a more modern approach to portfolio construction.

Modernity is a win/win/win for everyone. This is the free market at work.

SCW

PPotts

PPotts

September 3, 2013 — 4:07 PM

Mr Winks

I can log into my retail accounts at Fidelity or Ameritrade right now and receive detailed reports on the portfolio in terms of asset allocation, performance and risk. I am not certain why you espouse that retail is afforded less protection.

The fiasco of the DF, as a whole, is apparent if I lose access to my advisor because third parties increase their costs for access to basically the same items that I get for free while paying smaller commissions.

I do not buy your win/win/win proposition in the least bit.

Stephen Winks

Stephen Winks

September 3, 2013 — 5:06 PM

PPotts

You may have missed the fact that no US brokerage firm allows their brokers to render advice, as that would trigger accountability for recommendations entailing a broad range on ongoing fiduciary duties in the consumer’s best interest.

As for your ability to perform a statutorily required asset/liability study, it is news to Fidelity and TD Ameritrade that they have the capability to evaluate all a client’s holdings, including those outside their custody, as a portfolio. This sort of evaluation is required before a recommendation to determination its implications as required for fiduciary standing and continuous comprehensive counsel.. This would be a quite an accomplishment that the industry’s largest firms have yet to achieve.

You may be the only person that utilize Fidelity and TD Ameritrade that is aware of this capability to include the firms themselves.

SCW

Stephen Winks

Stephen Winks

September 3, 2013 — 5:13 PM

PPotts,

To provide clarity on professional standing and the fiduciary standard of care rendered by advisors.

The suitability standard to which the brokerage industry subscribes does not hold the broker accountable for their recommendations nor require ongoing fiduciary counsel in the consumer’s best interests. This lesser suitability standard obviously does not accord the same consumer protections that are afforded by a fiduciary standard in the consumer’s best interest.

SCW

Diane Ouellette

Diane Ouellette

September 24, 2013 — 6:22 PM

As a former micro-RIA who moved from Fidelity after they first doubled their fees, with very little advance notice, I was fortunate to move to Scottrade. Here, the service is 300% better, and I’ve more than doubled my AUM in 2 years. It turned out to be a blessing in disguise since Fidelity paid little attention to emerging and small RIAs, as they are focused on attracting primarily HNW clients. The tools and technology are also more user friendly at Scottrade, and the Relationship Management team concept works extremely well there, for those of us who want to serve the middle market.

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