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After Fidelity Investments and its owners get blasted by Reuters for alleged high-level conflicts of interest, Morningstar accepts the Boston-based giant's explanation

Fidelity says it was misrepresented, Reuters stands by its story and a Fidelity forever RIA urges the venerable Boston firm to apply a quick coat of Scotch Guard to its white hat

Author Janice Kirkel October 14, 2016 at 5:55 PM
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Ken Weber: We’ve always portrayed Fidelity ... as the guys in the white hats. This puts splotches on the white hats.

Abigail Johnson


Vincent Loporchio


Aaron Schumm



October 14, 2016 — 7:10 PM
Reuters is not even "technically" correct on this. In finance if you omit material information you are committing fraud. Reuters states that IF the mutual funds had invested in those same specific pre-IPO companies they would have made money, and since they did not the conflict of interest hurt the mutual fund shareholders. What they are omitting is that IF the mutual funds had also invested into the number of losing deals shareholders would have been hurt. In the reverse, since the mutual funds did not invest in the loser deals share holders benefited. The omission of the full set of investment options creates a false set of facts. Here is the worse failure of the Reuters story: They are clear and simple comparing apples to oranges. The mutual funds have a lower risk tolerance than the PE firm F-prime. The mutual funds are prohibited by the SEC from having more than 15% of their assets in illiquid investments. To say that the PE firms investments into higher risk and illiquid positions hurts the mutual fund shareholders is false because the mutual funds cannot invest effectively in those markets the same way a PE firm can. Since the funds cannot invest effectively they would not benefit return wise in the fashion that PE firms do. Perhaps Reuters would be better served to write an article criticizing the SEC & FINRA for preventing non-qualified investors from investing in private equity? After all, more investors are shut out of those lucrative markets by the regulators than any other entity or investment company. At least FIDO funds are trying to get exposure in those markets in spite of the over burdensome rules aimed at limiting investor access to this investment type.
On the money

On the money

October 14, 2016 — 10:28 PM
Fidelity gets a black eye. Big Reputation Damage. Did Fidelity disclose that it uses OPM in its mutual funds to bolster the price of IPO's in which the Johnson family has stakes? Did it disclose that it used the same people to make sure that the pre-IPO and the IPO business and the mutual funds were in compliance with the full disclosure regulations and conflict regulations? Let's see MaryJo, the SEC Chief and Senator Warren look into this racket.

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Morningstar, Inc.
Top Executive: Joe Mansueto

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