It is a brokerage firm that I have used for many years for myself and my clients because it is truly a well-run private company, and the customer service has been excellent. As a matter of disclosure, there are no hidden agendas here—I receive no compensation from Fidelity (either directly or indirectly) for writing this article.
Cost
If you’re an active trader (>120+ trades per year) and trade size (over 2000 shares at a time), Fidelity is tough to beat with $7.95 commissions per trade, unlimited size.
Plus, with the Active Trader program, you get access to a host of analytical tools like Wealth-Lab Pro, where you can back-test virtually any directional strategy using technical and fundamental variables. The Options Analytical software is also quite powerful, although for serious and experienced options traders, I believe that OptionVue and ThinkOrSwim (now owned by TD Bank) are better. However, if you’ve read one of the ProActInvest articles on options trading, I strongly believe that most investors should stay away from these leveraged beasts for the most part. Leave options trading to the pros, because that’s who you’re up against.
Suppose you’re an ETF sector and/or asset class rotation trader. In that case, Fidelity offers commission-free trades inside a universe of 30 iShares ETFs (17 S Equity style box and benchmark ETFs, 6 international equity ETFs, 6 fixed income or bond ETFs, and 1 REIT ETF). This is great for traders and tactical investors with market timing skills or those who subscribe to a competitive market timing signal service. Along these lines, you may be interested in one of the timing models offered by ProActInvest.net.
For less active traders, Fidelity may not be the place for you—you’ll be better off trading at Interactive Brokers until you hit the 2,000 share mark, at which point you’re probably more of an active trader anyway, and then the Fidelity Active Trader program is where you want to be.
For strategic asset allocation investors (“set it and forget it” type investors), you’ll get as-reasonable-as-it-gets commission rates for mutual fund trades, even though you’re paying $75 per trade for online executions. ETF trades fall into the stock trades category, where you’ll pay $7.95 for online trades. That’s pretty reasonable. Compare Fidelity’s rates with Chuck Schwab’s, for example, and you’ll be glad you read this article, because ironically, while Schwab was the pioneer of discount brokerage firms, it really can’t compete with Fidelity or Scottrade in this department.
Individual bond trades are about as low as you can get in the business—US Treasury bonds and TIPs are free, and municipals are $1/bond. So if you bought $10,000 of IBM 5-year corporates, you’d pay $10 for the transaction (typically bonds trade in $1,000 increments). By the way, the bond analytics are excellent if you’re the type of investor who likes to cherry pick your bonds – which I strongly discourage for most investors—you’re much better off going with a solid bond fund ETF or managed bond mutual fund like JAFIX or LSBRX that diversifies across hundreds of individual bond issues, for example. I only suggest considering individual bonds for high-net-worth investors who need municipal issues to reduce their tax burden.
Trade Execution Efficiency
I can’t complain about the fills that I’ve gotten at Fidelity. They’ve been pretty much in line with the bid-ask spreads. But then again, I trade mostly liquid ETFs. For mutual funds, this is not really an issue because investors typically get in and out at the NAV (net asset value of the fund, which is calculated around 4 PM each day). Investors should not trade mutual funds because of the high cost of commissions involved, as well as early redemption penalties. (The exception to this would be a fund family program like Rydex or ProFunds that allows commission-free unlimited fund rotation, which assumes that you have incredible market timing skills). Remember, a high frequency turnover rate is more likely to hurt rather than help investors—for most, if not all, investors, it’s much better to get the asset allocation right, set it and forget it, rebalance once per year, and stick with the program. Warren Buffett did not get rich by day-trading his stock portfolio.
Research and Analytics
As mentioned above, Wealth-Lab Pro and Options Analytics are very useful for active traders. But Fidelity also has some of the best research for traditional investors as well, who think long-term. I consider Fidelity’s mutual fund, stock, ETF and bond analytics to be on a par with Morningstar.com.com—I use the two interchangeably quite a bit for my investment research. What I like about Fidelity and Morningstar research is that they are both objective—there are no hidden agendas favoring certain fund families or investment styles over others. Very comprehensive and insightful as well. I have used Fidelity’s website interactively with students in classroom situations with great success. My students loved both the Fidelity and the Morningstar websites.
Range of Products Available
Fidelity takes a Target or Wal-Mart approach to offering investment products to customers and financial advisors. Fidelity offers virtually any mutual fund on its Retail Funds network (from virtually all the big and smaller fund families), much like Scottrade. If a mutual fund is not available through the Retail Funds network, it’s probably too esoteric for most investors. While Vanguard is also a reputable brokerage firm, they simply don’t have as wide a selection of mutual funds as Fidelity or Scottrade. Vanguard tends to focus on promoting its own low-management-fee index funds.
Fidelity also offers some of the lowest commission rates for annuities, in all the various shapes and sizes (index, fixed, immediate, variable, variable tax deferred, etc.) This is relevant for high net worth investors and retirees , especially.
Reporting
This is one of the areas where Fidelity shines. Around tax time ,when I have to generate a 1099-B for clients and for myself, I can count on Fidelity mailing (and e-mailing) me a copy a week or two after January 1st. Sometimes, getting your tax statements on time for tax season can be an issue with the other brokerage firms. When I used to have accounts at Vanguard, the tax reporting was less than stellar. I remember getting stumped on a cost basis issue one time at Vanguard. This has never happened to me at Fidelity, where the tax, trading and fund flow activity and performance reporting is first rate. And, most of these reports are available online and can be exported to an Excel spreadsheet if necessary. One minor area that can be improved is the performance analytics report – at the moment it is updated once per month – it would be great if Fidelity would update this once per week (or even daily) if possible. The performance analytics report is not to be confused with the account positions table/statement, which is updated in real-time for stocks/ETFs and once per day for mutual funds.
Customer Service
Again, of all the brokerage firms that I have dealt with, Fidelity has given me the best customer service. Representatives are tight on privacy/security, professional and courteous. Advanced investing concepts and questions are dealt with by experienced traders, market makers and advisors if necessary for the professional client services accounts (usually clients and advisors with somewhat larger sized accounts). Dealing with fund transfers is a breeze – you can even sign up for an automatic funds transfer for dividend payments from selected mutual funds on a weekly or monthly basis into your personal checking account, which is a nice feature for retirees who depend on interest income for their daily expenses.
In addition, there’s always a local branch representative available to help you set up and fund new accounts or to answer investment questions that you have.
Bottom Line
For competitive commission rates, great customer service and excellent reporting you really can’t beat Fidelity. I highly recommend this firm among all the brokerage firms out there, and would buy the stock if it were trading publicly. But thank God Fidelity is still a private firm. I have a feeling that if it were publicly traded, much of its shine and sparkle would become jaded. Fidelity gets two thumbs up from ProActInvest.net