Fidelity, like many other brokerages, imposes a trading fee when you redeem (sell) fund shares that you have held for fewer than some (broker-specified) number of days. For Fidelity, that period is 60 days.
That seems pretty straightforward - this is a fee imposed by and paid to the brokerage for its service in processing the trades.
I just spoke with a Fidelity private client rep who said that this is a fee that Fidelity merely passes through to the brokerage. In this worldview, it is the NTF funds that are waiving the transaction fee. So if you don't hold those shares long enough then it is the fund company revoking that waiver. And the short term fee collected is then passed through to the fund company. It's not a Fidelity fee.
I've never seen or heard this before. It's an odd view, considering that Fidelity lists this fee under brokerage commissions:
https://www.fidelity.com/trading/commissions-margin-ratesFurther (
https://www.fidelity.com/mutual-funds/all-mutual-funds/fees),
Short-term trading fee: 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, TF funds, etc.] In addition, Fidelity reserves the right to exempt other funds from this fee, such as funds designed to achieve their stated objective on a short-term basis.
Keep in mind that the short-term trading fee charged by Fidelity on FundsNetwork NTF funds is different and separate from a short-term redemption fee assessed by the fund itself.
According to the rep, a fund may have its own fee (as underlined above)
and it may also "revoke" its "waiver" of a $49.95 fee. I called back, read the text above to the rep, and he reiterated this.
All I originally called to ask was to confirm that there was no short term fee imposed if one sold NTF shares and then immediately repurchased them. (His first response was to launch into tax implications.)
No wonder people get so confused with these fees.
Comments
I thought that the funds must state any ST fees, as some VG funds do. Anything else may be just between the fund firm and brokerage.
The NTF platform charges are steep, 25-50 bps, offered as take-it-or-leave it basis except for the biggest firms (they even apply to brokerage CDs). For example, Fido and BlackRock/BLK have a deal for a long time for cross-selling/promo of funds. I think that Schwab and RA also some deal for a few exclusive RAFI funds.
Fidelity and Schwab and others get paid percentage fees by fund families (including lesser fees by TF fund families) to hold shares and service them. If brokerages hold those shares for too short a period of time, they lose money on the services (buy/sell/report). I assumed and still assume that the brokerages hold onto their short term redemption fees in part to cover this expense and in part to make an additional profit.
None of that makes sense if the brokerages don't get the fee.
I asked Fidelity to confirm that there was no fee for buying back shares shortly after selling. There is no way to test this without actually trading. I could put in the test sale (first line in your comment), but would not be able to put in a post-sale test buy without having first actually executed the previous test sale.
Need clarification on two sentences from the posts above:
"I just spoke with a Fidelity private client rep who said that this is a fee that Fidelity merely passes through to the brokerage."
Based on the context, I think you meant "fund' where it says "brokerage." I agree with you that Fidelity Rep is BSing. In fact Fidelity Reps also told me that the transaction fees on TF classes are also passed on to the fund companies. All fees collected from us by a fund needs to be disclosed in the prospectus. Does not matter if they are collecting directly from us (e.g., ER) or through an agent (e.g., brokerage). If it is not disclosed by the fund, the brokerage keeps the brokerage commission. I may have mentioned before that in the last couple of years I have found Reps at all brokerages I do business with have given me misinformation one time or the other, some even in writing. I think brokerages expect us to train their Reps! I usually ask them to point to a document or page on their (or a) website if I do not think their answer makes sense. More often than not the Reps insist their wrong answers are correct, even when the official answers clearly show the Reps are wrong. With the long telephone waits and the sub par customer service from Reps, I call the brokerages less and less and try to figure out answers without their assistance.
(In my last encounter with a TD Rep, I asked him to point me to a SEC webpage or document that states what he was espousing. He gave me an URL to a 400 page document. After confirming with him I have the correct document, I asked him to point to the page where he was getting his answer from. He said page 19 which had nothing to do with the topic of conversation. So, I put him on hold and looked at the document and figured out that it is a proposed (not final) SEC regulation document, with the first 300+ pages being preamble (SEC discussion) to the proposed regulation. I politely told the Rep what he is doing and asked him not to assume his clients are idiots. I asked him to transfer my call to his supervisor and he dropped the call. I have been with TD for over 20 years and they were one of the best for customer service but this was new.)
"I asked Fidelity to confirm that there was no fee for buying back shares shortly after selling."
Fidelity does not charge a fees for buying into an NTF fund class. If there is a frequent trading violation, one can be banned from buying back into the fund permanently or temporarily but fees to buy back? I do not have a recent experience with short term trading of NTF funds but you can ask some of the fund traders in this forum to confirm. May be I am not understanding the question you are exploring.
Fidelity dings traders of non-Fidelity NTF funds for a buy-then-sell short term round trip, but not for a sell-then-buy short term round trip. See the first quoted block in my OP.
I'm rather familiar with Fidelity's rule. The purpose of my call was only to confirm my understanding before I set forth in a long sequence of trades. I don't like being surprised after the fact.
Some families deal with the question of a sell followed shortly thereafter with a buy by simply prohibiting it. Vanguard's policy is to prohibit repurchasing of shares within 30 days of sale for most of its funds. (Check any Vanguard prospectus.)
I read all of the text quoted in my OP to the rep, including "Fidelity charges a short-term trading fee ..." Yet he continued to insist that Fidelity does not charge any fees for online trading of funds. He chose to interpret "Fidelity charges" as "Fidelity doesn't charge, it just passes through a $49.95 fee imposed by the third party fund.
FWIW, Fidelity imposes excessive trading restrictions only on trades of its own Funds. On NTF FundsNetwork funds, Fidelity charges a short term trading fee for a buy followed by a sell within 60 days. (For the purpose of counting 60 days, Fidelity uses FIFO.)
https://www.fidelity.com/mutual-funds/all-mutual-funds/fees
"I just spoke with a Fidelity private client rep who said that this is a fee that Fidelity merely passes through to the brokerage."
I definitely misstated that. I meant to say that the rep claimed that the $49.95 short term fee that "Fidelity charges" is actually a fee that the fund charges and Fidelity brokerage merely passes through to the trader. It only looks like Fidelity is charging a fee.
This was not your typical rep misinformation. This rep did not simply state that Fidelity doesn't charge the fee. His response was positively creative. As I suggested in naming this thread - a novel explanation.