Saturday, March 16, 2013

If Your Financial Advisor Is Upset About This, Fire Him: Fidelity ETF Redemption Charge


If Your Financial Advisor Is Upset About This, Fire Him: Fidelity ETF Redemption Charge

Fidelity announced that it is expanding its relationship with Blackrock to offer more Exchange Traded Funds (ETFS) commission free[1].  Blackrock is the largest purveyor of ETFs, so this announcement should make Fidelity’s trading platform more attractive to financial planners.  Here’s the wrinkle. Fidelity will impose a $7.50 charge on investors who sell within 30 days and on financial planners who sell within 60 days.  Apparently a lot of financial planners are upset about this redemption charge and are threatening to move their accounts elsewhere.

PE Marketing Strategy (2008)

Holding a security for 60 days isn’t investing.  At best it is active trading, and more likely it represents rampant speculation.  Moreover, holding a security for only a few months subjects any gains in taxable accounts to treatment as short-term capital gains.  If a financial advisor is trading in and out of ETFs on a monthly or quarterly basis, you probably have a bad financial advisor.  So if Fidelity’s announcement upsets your financial advisor, and he’s talking about moving your account elsewhere, my advice is to find a new financial advisor.

While Fidelity’s decision to impose redemption fees is sound policy, let’s not praise them too much.  Fidelity and the rest of the mutual fund industry are opposed to the idea of imposing a small financial transaction tax on all trades (mainly a European idea) in order to discourage rapid-fire trading.  So while Fidelity is happy to impose a “tax” on its investors, they are unwilling to have a tax imposed on them in order to discourage short-term trading in their funds.

Unfortunately, financial advisors, mutual funds, and most other purveyors of financial products are all too interested in preserving their profits instead of yours.




[1]http://online.wsj.com/article/SB10001424127887324392804578360800747665608.html?mod=WSJ_hp_LEFTWhatsNewsCollection

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