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Question: Does First-in / First-Out apply to selling NTF funds?

edited June 27 in Other Investing
I’m trying to get “grounded” at Fidelity.

1. RPGAX has now been moved there “transfer in kind”. if I buy additional shares now (NTF at Fido) do I need to wait 60 days before I can sell any shares out of RPGAX, or would the commission (penalty from my viewpoint) only apply on the newly purchased shares? Did recently add to RPGAX (this month) before the transfer, if that makes a difference.

2. If you sell a NTF fund and than turn right around and buy it in a few days, is that a violation or would it result in added fees? Dumb as it sounds, I’d sold a bit of PRWCX at Fido last week in a futile effort to keep from having a “delinquent” account after an asset transfer failed to execute.

Thanks

Comments

  • 1. Anticipating your question, I called Fidelity a couple of weeks ago. While I have nothing in writing, the front line support person checked with someone in the back and verified that NTF short term trading fees apply FIFO. (The policy could be different at other brokerages.)

    Since that addresses your particular situation, we can skip the question of whether short term fees apply to shares transferred in. Though I suspect not, because the fee applies to shares purchased on the Fidelity platform and shares transferred in were not.

    2. The short term trading fee applies to non-Fidelity NTF funds purchased and then sold within 60 days. There's no restriction or fee on the repurchase. (Unlike, say, Vanguard funds where Vanguard generally doesn't permit a repurchase within 30 days. )

    https://www.fidelity.com/mutual-funds/all-mutual-funds/fees
    https://personal.vanguard.com/us/whatweoffer/overview/redemptionpolicy

    Notwithstanding the above, it would be a good idea for you to call Fidelity to verify this. Then, if they subsequently charge you a fee, you can have them waive it on the basis that they told you that you wouldn't be charged.
  • edited June 27
    @msf -Thanks. I’ll continue to learn. Experience is a great teacher - but it can be expensive.

    Umm … Just to clarify … Fido doesn’t appear to call those “short term trading fees” when you sell a NTF fund early. In my case, they called them “deferred sales commissions.” So, on 2 of my NTF funds they force-sold (after the transfer of cash fizzled) the commission assessed was $100 each. (later reversed.) Reading their online lit, it appears that had I sold the funds online the commission would have been $50 each instead of $100.

    Where I think the short term fee might be assessed is on Fido’s own in-house funds if you sell shares inside of 30 days. But I’m not entirely clear on that or how much might be. Fido’s Lit. makes clear that “first in / first out” does not apply if you sell one of their own funds inside of 30 days. What I’m not clear on is whether it simply goes down as a violation, or whether a fee is also attached.

    (I’d check, but they seem to have expunged those charges from my account after I had them reversed.)

    FWIW - That question came up in a slightly different context when I asked a Fido rep about PRIHX (also transferred to Fido). My concern: I tend to use it as a “go-between” between longer term investments and cash for current consumption. I asked about what if I purchase additional shares of the fund (NTF), than unexpectedly have a need to withdraw some? Answer: It’s first-in / first out … However, “you should phone us first” and specify that you want us to redeem the “earlier purchased” shares. Seems odd to me that it would necessitate a phone call. Will comply.

    Thanks again. I recently answered a question from @Crash in 1-minute’s time. (see “delete”) Thought that was pretty good. But you did even better by calling Fido before I even asked the question. :)


    PS @msf wrote: “The short term trading fee applies to non-Fidelity NTF funds purchased and then sold within 60 days. There's no restriction or fee on the repurchase. (Unlike, say, Vanguard funds where Vanguard generally doesn't permit a repurchase within 30 days. )”

    I have to assume both are correct. But not sure how I got hit with 2 $100 commissions when they force-sold two ntf funds (CVSIX and GLFOX). However, I was able to repurchase a bit of GLFOX without trouble after selling shares of PRWCX - So the second part is absolutely correct.
  • Based on what you were told, I may have misunderstood Fidelity's response. There are three ways fees could be imposed:

    1) LIFO - if you purchased any shares within the past 30 days, a sale, even of different shares, would trigger a fee. Fidelity is clearly not doing this.

    2) FIFO - a fee is triggered only if, when ordering shares oldest first, at least some of the shares you're selling were purchased within 60 days. This would be the most favorable treatment, and how I interpreted the answer.

    3) Age of actual shares sold. If you specifically indicate short term shares (i.e. shares purchased within the past 60 days) to be sold, then that would trigger the fee. This could also be triggered if you gave a default method (such as "sell highest cost shares first") and didn't indicate which specific shares you were selling in this particular transaction. In this case, it is possible that the algorithm you elected would select short term share to sell.

    It's possible that Fidelity told you to call them to prevent just this type of sale from occurring. Note that if you did not elect a default disposition method, or have explicitly elected to use average cost, then the shares are sold oldest first (FIFO), and then #3 acts the same as #2.

    https://thefinancebuff.com/change-cost-basis-method-average-cost-specific-identification.html
  • Several considerations you may consider in order to avoid 60 days holding period.

    1. Find a different fund that is equivalent to the TRP fund. Fidelity lists a number of similar funds including their own funds.

    2. Use ETFs since the trading are free in large brokerages and there are few buy and sell restrictions. The trade off is that ETFs are mostly passive. More active managed ETFs are becoming available.

    Fido’s on-line chat is pretty quick to response in daytime. Prior to COVID, the customer service was excellent, 24/7.
  • edited June 27
    @msf +1

    Note: I’m trying to turn over too many stones all at once. Most are “worst case scenarios” not likely to ever be experienced. Really appreciate everything you and other board members have done over the past month to bring me to semi-literacy on how a brokerage account functions.

    Regards
  • edited June 27
    Thanks @Sven Good advice.
  • edited June 27
    I’ll check those “default” settings msf mentions above. Learned to monitor the “reinvest dividends” setting after a small dividend was transferred into my cash account instead of being reinvested as desired. (It’s amazing that could even happen with a fund held only 3 days!) :)

    After 30 years trading directly with fund houses, the Fido site seems much more elaborate & daunting.

    Enjoying the challenge. Continue to assess how to incorporate new options / limitations into my approach. New to ETFs. Like what I see. As Sven points out, they can be traded w/o restriction.
  • +1 hank I use etfs extensively, and in this market sell quickly to realize profits or minimize losses. ESGV and JEPI work, but IVOL seems to be in a downtrend.
  • hank said:

    I’ll continue to learn. Experience is a great teacher - but it can be expensive.

    I've found that the more expensive the lesson, the more likely one is to remember it in the future:-)
    hank said:

    Umm … Just to clarify … Fido doesn’t appear to call those “short term trading fees” when you sell a NTF fund early. In my case, they called them “deferred sales commissions.” So, on 2 of my NTF funds they force-sold (after the transfer of cash fizzled) the commission assessed was $100 each. (later reversed.) Reading their online lit, it appears that had I sold the funds online the commission would have been $50 each instead of $100.

    In its Brokerage Commission and Fee Schedule, Fidelity writes:
    Short-term Trading Fees

    Fidelity charges a short-term trading fee each time you sell or exchange shares of a FundsNetwork NTF fund held less than 60 days. This fee does not apply to Fidelity funds, money market funds, FundsNetwork Transaction Fee funds, FundsNetwork load funds, funds redeemed through the Personal Withdrawal Service, or shares purchased through dividend reinvestment.
    A fund itself can charge a redemption fee to defray the costs to the fund associated with the redemption. The money goes back into the fund, so it's not a load or commission. The charge may be a short term redemption fee, such as Royce Fund's 30 day short term fees, or it may be charged unconditionally upon redemption, e.g. VIAAX.

    "Deferred sales commission" may be referring to a contingent deferred sales charge (commission) that applies to class B and some class C shares. But that's not something concerning no load (or load waived) funds. I've no other guess what this is about.
    https://www.fidelity.com/mutual-funds/all-mutual-funds/fees
    hank said:

    Fido’s Lit. makes clear that “first in / first out” does not apply if you sell one of their own funds inside of 30 days. What I’m not clear on is whether it simply goes down as a violation, or whether a fee is also attached.

    No Fidelity fund has a short term redemption fee.
  • edited June 28
    To clarify. The statement read only “commission.” I added the “deferred sales” (words) to help clarify, but ultimately sewed confusion.

    Sounds like the two $100 charges were maybe something imposed by the funds themselves? Or possibly related to my “free ride” or liquidity crunch? Like I said, they’re erased unless I can dig up an old screen-shot I might have taken.

    Fidelity charges a short-term trading fee each time you sell or exchange shares of a FundsNetwork NTF fund held less than 60 days.” Yep - I read that quite early in my “Fiducation””. And I asked a fido phone rep about it. He adamantly denied it and turned it back to the fee on Fido’s own funds. Than he added a “however” and went into some *** about how some other charges could apply on some funds.

    That’s not to say or claim that he was correct - or that I got it straight. But it’s what I thought he said.
    I feel possibly some in the mfo community might benefit from my experience, even though I escaped relatively intact, I know we’re all wealthy here. But a couple hundred dollars is nothing to sneeze at. Especially if tax-deferred money, making it worth even more. And the multi-year compounding capability is taken out.

    Hank said ; Good grief. This stuff is complicated!
  • Hank said ; Good grief. This stuff is complicated!

    So complicated that the Fidelity rep got it wrong. It wouldn't be the first time. Recently in passing I commented to a rep that QCDs are available once one is 70½. He immediately "corrected" me, saying that the rule had recently been changed (to age 72). That was wrong, and upon my insistence he retracted that.

    The reason why I suggested asking Fidelity about their "FIFO" rule on its brokerage (not fund) short term trading fee is not that you'd get the right answer. Rather, if Fidelity did subsequently charge you a fee you'd have grounds to have them waive it. Insurance against another "expensive lesson".

    Sounds like the two $100 charges were maybe something imposed by the funds themselves?

    That would have to be disclosed in the funds' prospectuses: Calamos Market Neutral Income and Lazard Global Infrastructure. It would also be a remarkable coincidence if those two funds each imposed the identical $100 fee.

    I think you got it right the first time: it appears that had I sold the funds online the commission would have been $50 each instead of $100.
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