Fidelity - same day fund exchange restrictions and my experience

msf

One can enter orders online to do same day exchange of funds within the same family. However, Fidelity requires you to use shares (not dollars) to say how much you're selling if you're exchanging more than 90% of a fund.

Limiting dollar orders to 90% of a holding ensures that you have enough shares to sell even if the price plunges before the sale is executed at end of day.

Same day exchanges across fund families are more complicated. They're not really single transaction exchanges but a sell order and a buy order masquerading as an exchange. So the transactions have to be in dollars. And that means Fidelity limits them to 90% of the current value of the fund being sold.

Further, the buy order has to be placed by a Fidelity rep. The online system won't let you enter the buy order for the same day yourself.

The rep's task is straightforward:
1) Compute 90% of the current value of the old fund
2) Enter a sell order for that amount of the old fund
3) Enter a buy order for that amount of the new fund

Five phone calls, three reps, and I now have such an order entered. Two of the five calls were dropped by the phone system when trying to connect me with a rep. Rep one said I had to sell all the shares to use 90% of the proceeds for the new fund. Rep two actually entered the transaction as a single-transaction exchange (doesn't work). Third time was the charm.

yogibearbull

But no issues in margin a/c - may be a hit of 1-day interest on mistakes involving OEFs (T+1 settlement) and ETFs (T+2) settlement). I don't use margin anymore but the a/c are approved for margin, shorting and options. My experiences are at Fido and Schwab Brokerages.

However, I still encounter these issues in the IRAs.

Observant1

I have several Fidelity accounts.
This is very useful information.
Thanks for posting!

msf

But no issues in margin a/c - may be a hit of 1-day interest on mistakes involving OEFs (T+1 settlement) and ETFs (T+2) settlement).

That's exactly the reason that I turned off margin. I want the system to tell me if I've made a mistake. Before I turned it off I did on very rare occasions incur petty interest charges.

However, I still encounter these issues in the IRAs.
Bingo!

yogibearbull

More info on brokerage web info.

All brokerages are sort of sneaky in how they present the $balance/$money available in positions/holdings screens. And that is what has tripped me on some occasions even when I am well aware of differences between T+1 and T+2 settlements.

The amounts shown are total amounts available to trade and that is $settled + $pending settlement.

In the Balance Screens, often there are $amounts available to trade that are different from $amounts available to withdraw (that is the really settled $amount).

Only Fido has the complete info in the Balance Screens broken down as $available WITH margin credit and $available WITHOUT margin credit.

Of course, in IRAs, or in a/c without margin, the trade screen won't allow trade without sufficient balance.

hank

Thanks for posting. It never even occurred to me you could do that type of intra-family exchange at Fido. And it is a pain when you sell a very large holding and then need to wait until the next day to access the proceeds and buy whatever it is you intended to. You’re trusting that prices won’t deviate too much overnight. Personally, I’m pleased to now own funds from about a dozen different families - a far cry from 2 years ago when most of it was with TRP. The 90% restriction? I’ve run into that a couple times elsewhere - once while at TRP.

One question - Does Fido exempt you from paying a fee for placing that buy order with a rep? Or, does the fee apply perhaps to only stock purchases?

yogibearbull

If you tell the Fido Rep that you tried online order but it isn't working or isn't available, then the Rep fee is typically waived. Mention it upfront to remove doubt.

hank

yogibearbull said:

If you tell the Fido Rep that you tried online order but it isn't working or isn't available, then the Rep fee is typically waived. Mention it upfront to remove doubt.

Thanks @yogibearbull. Recently I called Fido to make sure a recent “sell” had settled, as it wasn’t yet showing up on the account page. I wanted to use proceeds for another purchase (and avoid a free-ride violation). The rep confirmed the settlement and offered to put the purchase through for me. I politely declined, assuming (perhaps incorrectly) there would be a charge for the service.

Honestly, it has been a pleasure to deal with Fido after what amounted to torture for the last year with TRP. Fido’s agents speak fluent English, are usually available in a minute or so, and are extremely knowledgeable. If the call needs to be transferred to a different department, the wait may be longer. Well worth the wait. Sometimes I’ll be put on a 3-4 minute hold while the agent checks the records. But nothing like the lengthy waits I’d become accustomed to at TRP.

BTW: Barron’s this week features an extensive discussion of brokerages along with its annual ranking. Fidelity and Interactive Brokers (IBKR) tied for first place, with 5-stars each. Schwab placed third, with 3.5 stars, but stood out for its excellent customer service.

catch22

Thank you Mark for this post information, and @yogibearbull for your added information, too. We've had accounts with Fido for 45 years, and the organization remains progressive and easy to deal with.

yogibearbull

In an account w/o margin, Fido didn't allow entering T-Bill/CMB Auction order for this week when there was a maturing T-Bill this Thursday (also the settle day for Auction purchases). In my margin a/c, I never encountered this, nor in Vanguard non-margin a/c. I found this strange but didn't have time to call Fido Rep.

FD1000

I have been complaining about the above for over 10 years to Fidelity reps/supervisors. Several reps told me it's a finra/sec rules but it's not correct. It's Fidelity's own imposed rules.
As a trader, it's just annoying and wasting extra time. When I'm invested, I want to be in all the time and not wait an extra day since I hardly ever use the exchange feature by selling/buying funds from the same family funds. The use of 90% of the proceeds for the buy order is also annoying, especially when I sell bond funds on regular days when they move less than 0.5%
Over the years, I see a deterioration in the knowledgeable reps. Years ago, I hardly ever had any issues calling a rep to enter the buy trade, in the last couple of years, I get replies such as You can't do it and must wait another day or I need to change you a fee. In these cases, I ask to talk to a supervisor to solve the problem. It can take up to 30 minutes.
At Schwab it's a lot easier, I just enter the sell first, and seconds later, I enter the buy order, and I'm responsible to make sure the buy amount is small than the sell. In most cases, I trade bonds OEFS and why I use 99%. The process takes 1-2 minutes, and no reps are involved.

msf

Did Fidelity say exactly that exchanging more than 90% of a fund violates a securities rule (either FINRA or SEC), or did Fidelity say that one risks violating a rule should proceeds fall short of the buy?

Note that regardless of whether one is doing an exchange or merely a sell, Fidelity limits you to 90% of the current value if you specify the amount in dollars. You're free to sell any percentage you want specified in shares.

With respect to Fidelity service degrading on these exchanges, I agree. See my OP. Three reps until they got it right.

FD1000

Several reps said that buying above 90% violates a securities rule (either FINRA or SEC). So I told them: if this is true how come Schwab let you do it? It's hard to believe a company that size would violate this rule thousands of times.
The rep realized he was caught massaging the truth, and only then said: well, Fidelity is a conservative company, and decided to go with 90% arbitrary.
I replied: how is this make sense if I trade bond OEFs that move so little?
The rep: the rules are for all funds regardless.

Tarwheel

FYI, I tried to make a same-day exchange from a T Rowe Price fund to an ETF in the same family and the account rep told me they can’t do this. He said I would have to sell the fund first and then buy the ETF the next trading day. Likewise, he said I could not do a same day exchange from a TRP fund to a Fidelity fund. I was told this today.

msf

TRP OEF to Fidelity OEF: Fidelity will only let you exchange 90% of one family's OEF (here, TRP) to another family's OEF (here, Fidelity). And the amount must be denominated in dollars (i.e. 90% of less of the current value of the TRP holding). I've been encountering resistance from some reps, but this is Fidelity's rule and they will follow it if pressed. One has to keep pointing out that the transaction is in dollars, not shares. I've done this twice in the past couple of days.

TRP OEF to ETF: Same family only matters for OEF to OEF. There, it's the fund distributor (I think) that handles all end-of-day transactions "simultaneously" without going through a third party. That's the way all the fund families used to handle exchanges before brokerages starting acting as intermediaries.

OEF to ETF generally: I have a vague recollection of pressing Fidelity about an OEF to ETF trade, where they finally acknowledged that their placing an ETF buy order immediately after placing an OEF sell order (in dollars) shouldn't be any different from putting in a same day buy order for an OEF.

If anything, the buy side with the ETF would take longer to settle (T+2 vs. T+1 for most OEFs).

Edit: Now I remember the conversation. It was about swapping a Fidelity index OEF for a non-Fidelity ETF so that I could move the holding to another brokerage paying a bonus for new assets. I never made that trade, but finally convinced Fidelity that it was permissible.