Fidelity Investments: Are They Fiduciaries?

When providing investment advisory services, Fidelity Investments is a fiduciary and is legally obligated to act in the best interests of its clients. In this capacity, the company must put the interests of its clients ahead of its own, disclose all fees and costs, disclose any potential conflicts of interest, and adhere to applicable laws. However, when operating as a broker-dealer, Fidelity is not legally required to act as a fiduciary and primarily executes trades chosen by the client.

Fidelity as an investment advisor

When providing investment advisory services, Fidelity is a fiduciary and is required to act in the best interests of its clients. Under the Advisers Act of 1940, registered investment advisors (RIAs) must act as fiduciaries when working with clients. Fidelity's Investment Advisory Services, including Portfolio Advisory Services (PAS), are offered by Strategic Advisers, Inc. (SAI), a Fidelity company and a registered investment advisor (RIA). When you enter an Investment Advisory Services relationship with Fidelity, the firm has a legal obligation to act as a fiduciary on your behalf.

As a fiduciary, Fidelity has several responsibilities and obligations. They must put your interests ahead of their own, disclose all fees and costs associated with their services, disclose any potential conflicts of interest, and adhere to applicable state and federal securities laws. Additionally, they must ensure that their investment advisory services align with your specific investment objectives, needs, and circumstances.

Fidelity's investment advisors aim to provide guidance to help you meet your investment goals. They will work with you to create a personalized investment plan that takes into account your financial goals, risk tolerance, and personal values. This plan can act as a guide for future decision-making and helps the advisor devise an appropriate asset allocation strategy.

It is important to note that Fidelity is not a fiduciary when operating as a broker-dealer. In this capacity, they are not legally required to act as a fiduciary and their primary role is to complete trades within your brokerage account based on your directions.

Fidelity as a broker-dealer

Fidelity is not a fiduciary when operating as a broker-dealer. In this capacity, the organisation is not legally required to act as a fiduciary. As a broker-dealer, Fidelity Brokerage Services, LLC's main goal is to accept orders and complete transactions within your Fidelity brokerage account based on your direction. You have full control of your brokerage account, and Fidelity's primary role is to execute the trades you choose to make.

Fidelity Brokerage Services is registered with the SEC and is a member of the Financial Industry Regulatory Authority (FINRA), the New York Stock Exchange (NYSE), and the Securities Investor Protection Corporation (SIPC). The brokerage arm of Fidelity Investments must also abide by applicable securities laws and regulatory standards. These regulations require broker-dealers to adhere to specific standards.

Broker-dealers must execute trades with diligence and aim to provide the best execution in light of market conditions. They must also have a reasonable belief that the securities they present to you are suitable based on your financial situation, risk tolerance, and other disclosed facts. Additionally, they are required to treat you fairly and uphold high standards of honesty and integrity.

While broker-dealers are not mandated to act as fiduciaries, they are held to the suitability standard. This means that broker-dealers need to have a reasonable belief that an investment or the frequency of trades is suitable for their customers. As a result, broker-dealers can recommend products or investments that earn them commissions or other fees, even if a similar option does not provide these perks.

It is important to note that some of Fidelity's brokers have insurance licenses, allowing them to sell life insurance and annuities from both affiliated and non-affiliated companies. When acting in this broker-dealer capacity, they are not required to uphold a fiduciary standard.

Fiduciary responsibilities

A fiduciary is someone who is legally obliged to prioritise a client's interests over their own. This means that they must offer investment advice and recommend products that align with the client's goals and objectives. When working with a client, a fiduciary must disclose all fees and costs associated with their services, as well as any potential conflicts of interest. They must also adhere to applicable state and federal securities laws.

Fidelity Investments acts as a fiduciary when providing investment advisory services. In this capacity, the firm has a legal obligation to act as a fiduciary on behalf of its clients. This means that Fidelity must put its clients' interests ahead of its own and disclose all fees and costs associated with its services. Fidelity's Investment Advisory Services, including Portfolio Advisory Services (PAS), are offered by Strategic Advisers, Inc. (SAI), a registered investment advisor (RIA) with the SEC. Under the Advisers Act of 1940, RIAs are required to operate as fiduciaries when working with clients.

When Fidelity serves as a broker-dealer, it is not required to act as a fiduciary. In this capacity, Fidelity's primary role is to execute trades within a client's brokerage account based on the client's direction. However, broker-dealers are held to the suitability standard, which means that they must have a reasonable belief that the investments or trades recommended are suitable for their customers.

According to the Employee Retirement Income Security Act of 1974 (ERISA), employee benefit plans, including retirement plans, must have one or more "named fiduciaries" who have the authority to control the operation and administration of the plan. These fiduciaries have specific responsibilities and are required to adhere to certain standards. ERISA also defines other fiduciary roles, such as investment manager, plan administrator, discretionary trustee, and investment advisor.

Overall, fiduciary responsibilities include prioritising the client's interests, disclosing fees and costs, adhering to securities laws, and providing investment advice that aligns with the client's goals.

Fiduciary best practices

A fiduciary is someone who has been given a great deal of responsibility and trust and is expected to act with integrity and in the best interests of their client. Fiduciary best practices are important to ensure that fiduciaries are aware of their responsibilities and carry them out effectively. Here are some key practices to consider:

Understanding Your Role as a Fiduciary:

Know your legal definition as a fiduciary. A fiduciary is typically an individual or entity, such as an administrative board, named in a written plan document. Fiduciary status is based on the functions performed and not just a person's title. It includes those who have discretionary authority over the management of a plan or its assets, render investment advice for a fee, or have discretionary responsibility over the administration of a plan.

Acting in the Best Interests of Beneficiaries:

As a fiduciary, your primary duty is to act solely in the best interests of the plan participants and their beneficiaries. This means making decisions that promote the profitability and well-being of those assets and individuals you are responsible for.

Mitigating Losses and Diversifying Investments:

Fiduciaries should work with financial advisors to create a diverse investment mix to minimise the risk of losses. It is important to provide multiple investment options to employees and ensure they have sufficient information to make informed decisions.

Monitoring and Documenting:

Fiduciaries should monitor their plans and the activities of service providers. It is crucial to document all financial committee meetings and decisions, especially those related to investment portfolios. Proper documentation can help protect you in case of any disputes or audits.

Understanding Plan Documents and Compliance:

Familiarise yourself with the plan document and ensure it is up to date with applicable laws and guidelines, such as ERISA guidelines in the case of employee retirement plans. Stay compliant with regulations and be aware of any specific requirements, such as the need for a fidelity bond to cover losses due to fraudulent activities.

Selecting Service Providers and Managing Fees:

When selecting a service provider, consider their experience, potential conflicts of interest, investment plans, and fee structure. Regularly review and evaluate plan expenses to ensure they are reasonable and properly managed.

By following these best practices, fiduciaries can effectively fulfil their duties, minimise risks, and protect the interests of those they serve.

The fiduciary rule

Fidelity Investments acts as a fiduciary when providing investment advisory services. In this capacity, the company is legally obligated to act in the best interests of its clients. This includes putting clients' interests ahead of their own, disclosing all fees and costs, and adhering to applicable laws.

However, it is important to note that Fidelity is not a fiduciary when operating as a broker-dealer. In this capacity, the organisation is not required to act as a fiduciary and instead upholds the suitability standard. This means that broker-dealers need to have a reasonable belief that an investment or trade is suitable for their customers, but they are not held to the same legal standard as fiduciaries.

Overall, the fiduciary rule is designed to protect investors by ensuring that investment advisors act in their clients' best interests and provide advice and recommendations that align with their goals and objectives.

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