Investing

Is Fidelity A Fiduciary To Your Money? What You Need To Know

Javier Simon

Published: May 17, 2024 5:00 pm

A fiduciary investment advisor is legally required to provide advice solely in the best interests of the client. Fiduciaries have a responsibility to offer investment advice and recommend products that strictly align with your goals and objectives.

For example, they can’t recommend products that would earn them commissions when similar options that don’t offer the advisor these benefits exist.

Fidelity Investments is a fiduciary when it works in an investment adviser capacity. But it’s not legally required to act as a fiduciary when operating in a broker-dealer capacity.

Fidelity as an investment adviser

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) with the SEC. Under the Advisers Act of 1940, RIAs are required to operate as fiduciaries when working with clients.

When you enter an Investment Advisory Services relationship with Fidelity, the firm has a legal obligation to act as a fiduciary on your behalf.

In this capacity, you’d typically be working directly with human investment advisors who would aim to provide guidance to help you meet your investment goals.

Here are some of their fiduciary responsibilities.

• Put your interests ahead of their own
• Disclose all fees and costs associated with their services
• Disclose any potential conflicts of interest
• Adhere to applicable state and federal securities laws
• Ensure that investment advisory services align with your specific investment objectives, needs, and circumstances.

Fidelity as a broker-dealer

When Fidelity serves you in a broker-dealer capacity, the organization is not 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.

In other words, you have full control of your brokerage account and Fidelity’s primary role is to complete the trades you choose to execute.

Fidelity Brokerage Services is registered with the SEC. It’s also 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.

Such regulations require broker-dealers to follow these standards.

• Execute your trades with diligence and aim to offer the best execution in light of market conditions
• Have reasonable belief that securities specifically presented to you are suitable based on your financial situation, risk tolerance, and other facts you disclose to the firm.
• Treat you fairly and uphold high standards of honesty and integrity.

Fiduciary standard vs suitability standard

Although broker-dealers aren’t required to act as fiduciaries, they are held to the suitability standard. This means broker-dealers need to have a suitable belief that an investment or frequency of trades is suitable for their customers.

However, this also means that broker-dealers can recommend products or investments that earn them commissions or other fees even if a similar investment or product does not provide those perks to the advisor.

Some of Fidelity’s brokers also have insurance licenses which permit them to sell life insurance and annuities provided by both affiliated and non-affiliated companies. These representatives may also offer referrals to non-affiliated advisors. In this regard, they would be acting in a broker-dealer capacity and not required to uphold a fiduciary standard.

Why this matters

Investing in your future and retirement is crucial to your financial well being. And it can help to work with professionals to achieve your financial goals. But not all are the same. Fiduciaries stand out from the pack because they’re legally required to always act in your best interest. At Fidelity Investments, you can work with fiduciary financial advisors when you enter an investment advisory relationship with the firm.

If you want to learn more about Fidelity, check out our regularly-updated list of Fidelity Investments guides, news, and coverage.