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Fidelity Charged for Unethical Behavior - What Our Clients Should Know

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We recently came across an article from Investment News addressing the recent charges brought against Fidelity Brokerage Services by the Commonwealth of Massachusetts. According to the article, Fidelity was charged with an administrative complaint for dishonest and unethical behavior by allowing unregistered investment advisors to make trades on their broker-dealer platform.

 The apex moment of the entire article was the example of one unregistered investment advisor making $732,000 in advisory fees on behalf of 20 Fidelity customers over a 10-year period. Allegedly, Fidelity was not only aware of this activity, but also encouraged it. A spokesman from Fidelity obviously believed the allegations were false and that Fidelity has not violated any laws or regulations in connection with the matter.

 Index Fund Advisors utilizes Fidelity for their custodial and trade execution services for our own clients, and it is incumbent upon us to make sure that any service provider that we partner acts with the highest standards of professionalism and ethical behavior. Furthermore, we would also like to take the opportunity to remind our clients that Index Fund Advisors does not receive any compensation or “kick-back” arrangements for being associated with Fidelity. You can learn more information about our relationship with all of our custodians in our ADV Part 2, which you can find here. You can also find our listing with the Securities and Exchange Commission here. We do not hold a certain preference for Fidelity, hence why we also work with Charles Schwab and TD Ameritrade. Our clients have the choice to work with whichever custodian they would like. Further, all of our Wealth Advisors are also registered with the SEC and have taken the required licenses (Series 65) to act in their capacity.

 What we also believe is a very important take-away from this lawsuit is how crucial transparency and independence are when it comes to the investment advising industry.  Our clients are fully aware of the action we are taking in their accounts. We provide quarterly rebalancing reviews and performance reports for our clients so they are always on the same page as us. Independence is also very important. We are not in the custodian business and there is really no reason for us to do it anyway. Working with independent third parties mitigates the risks associated with having valuations and trade settlements done in-house. Former investors of Bernie Madoff had to learn this lesson the hard way. 

 Please feel free to contact your Wealth Advisor should you have any questions in relation to this matter.