I’ve avoided sharing my frustrations over the past few weeks. But perhaps the experienced investors at mfo will indulge my venting or possibly offer some advice. In May I began the process of transferring all my accounts from TRP to Fidelity. This out of frustration with TRP’s front office / client relations. Held at TRP were Traditional and Roth IRAs, in roughly equal amounts, plus a non-retirement account. Completed the applications online, but needed to sign, date and mail some papers to Fido.
For the largest holdings I specified “transfer in-kind”. For 3 short-term bond funds having relatively low balances, I elected the “liquidation” option. The transfer-in-kind went through as intended and much faster than the cash transfers, Later, 3 separate checks from the liquidated accounts arrived at Fido, appearing there as “cash available to trade”. I invested the cash in 3 mutual funds, 1 ETF and 1 stock.
Three days later my account turned “delinquent”. Fido without consultation began force-selling those assets. After I called, Fido’s team informed me that all 3 checks from TRP has “bounced” - meaning they’d been returned to Fido unpaid by TRP’s bank. I and Fido’s reps nearly immediately contacted TRP. Their answer was that there’d been a “systems error” resulting in an unspecified number of similar cases and they were “investigating”. A week passed. Untold hours on the phone with both. At TRP the average wait is about 30 minutes (followed by additional delays while they “check”). Yesterday, TRP informed me the checks had been resent and should arrive at Fido next week.
At Fido things went from bad to worse. I suffered a modest market loss when the 4 investments were sold out under me after only a few days. Than, they hit me with 3 commissions or early redemption fees totaling $233 (later reversed). The real issue now is that
all of my Fido accounts are saddled with a multitude of “restrictions”. The Roth, which hadn’t even been funded when the issue arose in the Traditional, is also restricted. And, so is my cash management account, though the impact would seem slight. Fido says I’ll still be allowed to trade, but only with “settled” cash - a minor nuisance.
Here’s the
restrictions placed on all my accounts as I understand them. There may be more I’m not aware of.
- 3 separate “bounced check” violations which won’t clear for one year
- 1 “free ride” violation in effect for 90 days
- 1 “liquidity violation” in effect for 90 days
As I said, none should prevent me from trading with settled cash - but any additional could cause me to be banned from trading. Since I’m still waiting for 4 more checks to arrive (3 for the Traditional and 1 for the Roth), I’m on “pins and needles” here. Fido’s says their refusal to remove the restrictions is because they are from violations of SEC regulations. I’ve searched for similar reported problems online - but found only one (from a semi-literate poster) that went up last week. I’ll share FWIW.
https://www.reddit.com/user/DistrictFinal5222/ 
Comments
See also:
http://personal.fidelity.com/products/stocksbonds/content/cash-restrictions-free-ride-violations.shtml
I would guess that the restriction would not apply to exchanges within a fund family, because these are executed as a single trade through the distributor. But exchanges across fund families are technically two trades, so you would not be able to place the second trade until the first trade settled. Likewise, buying and selling ETFs are separate transactions so a purchase of an ETF would also be restricted to settled cash. https://www.fidelity.com/trading/faqs-trading-restrictions
If I understand this violation correctly, it happens when you sell a different security to cover the cost of what you purchased, as opposed to a free ride violation where you sell the same security to cover the cost. It sounds like this happened because the price of the funds went down, so Fidelity not only sold the funds purchased with bounced check money but also some other holdings to make up the shortfall.
I can find very little on Fidelity's site about restrictions due to a "bounced check violation". All I can find about bounced checks is in (among other places) their CMA agreement: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-agreement-cash-management-account.pdf
We’ve had our accounts with TRP for more than 25 years. We decided to move everything to Fidelity for simplicity and because their customer service is much better. Every time I call TRP I get put on lengthy holds. I like their funds but I can still own them through Fidelity with better service and options.
Fidelity provides the best balance of what we need online or speaking with a live agent. My asset transfer experience from TRP to Fidelity was done electronically and took 2 weeks for in-kinds transfer.
I can't believe that Fido didn't warn you about the use of funds from your three (small) checks. Recently CD matured & was deposited into a different bank. At that time I was informed that funds from the check weren't available for 8 days. Any deposits from checks , with a limit of over $5400 (?) had that attachment placed on them.
Keep us informed, Derf
Sorry for the loss and frustration
We moved everything from (bad trading acct) to Vanguard 3.5 yrs ago, funds over 500k. The process took sometimes over few wks/ repeated phone call, reprocessed loss paperwork, but overall process was painless but stressful.
Do you think you may consider writing to Tpr managers/ or ceo levels. Perhaps may consider retribution/partial paybacks for the loss. Tell them you mean business and give them bad ratings to your family members friends colleague/ investing forums/ business beaureau.
They may loose more business if they do not compromise /meet half ways with your situations
Good luck
Comedy of errors. Not to mention inadequate staffing. This is to say nothing of the fact that TRP has contracted-out to another outfit, the job of doing what I wanted to do. (So the agent told me!) Along the way, there are "security" questions that must be answered--- and QUICKLY! But some of those "security" questions were not even about ME. They were asking me about my BROTHER'S age. I have a pretty good idea, and it's a good thing I guess-timated correctly. Anyhow, along with all the rest of the aggravation, I find THAT aspect of it all to be highly reprehensible.
https://www.schwab.com/resource-center/insights/content/stock-settlement-why-you-need-to-understand-t2-timeline
I found this part interesting:I suspect that Schwab doesn't grant extensions in IRAs because of the stringent law against borrowing in IRAs. But that wouldn't seem to preclude waiving the 90 day restriction imposed.
Reg T itself says:Certainly there are exceptional circumstances here. If the freeze is important to you, it's worth poking Fidelity about their applying for a waiver.
All of this is bringing back memories of a vaguely similar experience I had with Fidelity. In an IRA I set up an auto purchase of a TF fund. I set the amount to be the available cash in the account. The system permitted this order to go through even though there was a $5 TF added. (Fidelity says that "If the cash needed to fund your automatic investment is not available in your core position, your scheduled transfer will be skipped", so this should have been caught.)
"Fortunately", the purchase was for one of the few OEFs with T+2 settlement. I worked with Fidelity and they agreed that if I were to sell $5 of another holding the next day, a fund with T+1 settlement, that would cover the shortfall. Both trades would settle on the same day.
According to Schwab, that still constituted a liquidation violation: https://help.streetsmart.schwab.com/edge/1.22/Content/Unsettled Funds.htm
Fidelity never informed me that I had committed a liquidation violation.
Today (Saturday) is the first time in 10 days I’ve logged in to my Fido account when the news wasn’t worse. Actually improved overnight. Possibly, the discussions with 3 different reps yesterday helped. Notably, the earlier mentioned restrictions now apply only to my Traditional IRA. On the Roth & non-retirement accounts they’ve disappeared.
@msf questioned the “bounced check” restriction. While not posted to my account, it was related to me by a rep at Fido’s trading desk after being transferred to him with some fund specific questions. I do believe it’s on file there - but is likely such an infrequent (and serious) infraction that it’s not mentioned elsewhere. The “free ride” likely refers to the small position I’d opened in a favorite stock (mostly for fun) that was sold by Fido only 1-2 days later.
Fido mailed me copies of TRP’s 3 bounced checks. They were written on an account at Mellon Bank of Delaware. They are stamped: “Return to Maker - Reason S”.
Here’s a copy & paste I pulled from my Traditional IRA at Fido this morning:
Free Ride Violations – 1 Violation in last 12 months
Good Faith Violations – None in last 12 months
Liquidation Violations – 1 Violation in last 12 months
Hoping to buy back into those mutual funds and the ETF next week. The stock was temporarily depressed when I bought it. It’s bounced back to the point now that I likely won’t buy it again.
FWIW (unrelated): I’m sharing a link to a 2020 informational piece at Fidelity regarding their dollar “threshold” as to when a round trip in one of their funds is likely to get you into trouble. That’s an area I’ve been trying to nail down as I do tend to increase / decrease exposure to certain positions fairly often. If the (monitored) threshold really is $10,000 (as their memo suggests) that’s good news for a lot of us.
https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/mutual-funds/2020-08-31-Excessive-Trading-Policy-Web-Post.pdf
PS - Try to be kind when talking to the reps at TRP. It’s not their fault things are so off the rails there. I actually apologized Thursday to a young lady after raising my voice in frustration. Her kind response assured me I was being tame compared to some of the interactions.
Re your question. It’s $20 at TRP for each closed out account. However, they only applied it to my 5 “liquidate all shares” orders ($100 total). The “transfer in kind” orders were not charged. I wish I’d had the foresight to combine the 3 shorter term bond funds (via exchange) before submitting the paperwork. Would have saved $40.
During my estimated 7-8 hours on the phone with TRP over a week (counting hold times) I tried to shame them into reversing the $60 in fees on the 3 transfers for which checks bounced. Said they’d “call back”. (But I’m not holding my breath.)
We also rolled over our 401K accounts from old old employer about the same time. That was much more involved because the accounts were invested in proprietary funds with Prudential. We had to sell all of the shares in both accounts and get them to mail checks to Fidelity using overnight service. That process took 3-4 days and we lost some money due to market fluctuations but I’m glad to have it over with. Now all of our investments are with Fidelity, making them either to track and manage. It will really help when we have to start making required minimum distributions in a few years.
But, does anyone know (or have an opinion) on whether a company like TRP really cares whether or not you own funds directly from them? It’s occurred to me that those AUM figures take into account assets in the funds they run - not necessarily under their roof.
Quite possibly they view the client interface, particularly live phone reps, as an Achilles Heel they can do without. I recall much better personal service 10-20 years ago. Easier to get through to a supervisor as well. Obviously, the phone reps at TRP are (often) poorly prepared for the variety of concerns they need to field. Hard to fault the employee if not qualified for the job or given the tools / authority they need.
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Yes, I completely understand that.
My understanding (read: no citations, I could be in mistaken) is that until sometime in the 80s(?), each mutual fund investment at any company was treated as a separate account with a separate account number. Similar to buying stock directly from a corporation. Two different companies, two different accounts.
I don't know about other companies, but in the 90s(?) Fidelity grouped these separate accounts together under a single "T account" number. It reported the accounts together on a single statement under a single T account number. But on the 1099 each fund still appeared as a separate account with its own divs and cap gains. (Contrast that with a brokerage statement where there's a combined set of figures for all the holdings.)
I looked at an old 90s statement and an old 90s 1099 to confirm this.
You can still find traces of this at Fidelity. On this Fidelity page describing direct deposits, click on the "Mutual Fund Account" tab in the middle of the page, and then look for "T account number".
https://www.fidelity.com/tax-information/direct-deposit
Whether the accounts were technically separate or not mattered. Until a few years ago, one could perform one 60 day transfer per IRA account each year. (Current law is one 60 day transfer, period, each year.) If your IRA accounts were separate, you could do a 60 day rollover of one, then later decide to do a 60 day rollover on another.
Just wondering, Derf
If one has been reporting sales using average cost, one needs all purchases and sales (even though one may have sold off many of the oldest shares) because the average cost is affected by any shares that were ever in the account.
I've scanned everything, so space isn't a problem.
I actually do have a taxable investment going back that far (acquired via UGMA). But the real reason I hold onto the statements is to come up with trivia like this
Derf
I’ve often wondered how that public ownership might play out - if at all. Assumed it would be on the fund management end. Likely it’s playing out instead on the client service end. Hard to think of any company where the client-customer end of the business hasn’t deteriorated. Humans are expensive to maintain due to their propensity to eat, along with the need for shelter, medical care, etc. A lot cheaper to have computers run the show - even perhaps at the cost of losing some business.
Interesting comment. I’m spread out across 1 brokerage now + 3 fund companies. In retrospect it was a mistake to let most of that pile up at TRP. For many years I held a kind of reverence for them. I know some disagree, but spreading it out a bit seems like a good idea. I’ve toyed with getting something going at Schwab. I’ll wait and see.
"Brokerage firms, for their part, have scant incentive to make it any easier to buy Vanguard products. Not only does Vanguard compete against their funds, but Vanguard has never paid for fund distribution. Fidelity and other brokerage firms have long chafed at Vanguard’s refusal to pay for distribution. Some fund companies pay more than 0.15% of fund assets to be on Fidelity’s platform, for instance. Those fees are increasingly important to brokerage firms as expense ratios decline and investors migrate out of actively managed funds to low-cost index products."
“'Vanguard doesn’t compensate us for the services we provide,' a Fidelity spokeswoman told Barron’s. 'That’s why there’s a higher transaction fee for its funds,' she added, referring to the $75 fee that Fidelity charges to buy a Vanguard fund, well above its normal $49.95 rate."
Link
N o M a r k e t i n g C a m p a i g n s
"Another important distinguishing characteristic of our firm is that we rely primarily on word of mouth to sell our Funds—you have never seen an advertising campaign for Dodge & Cox.
We neither pay for distribution nor pay brokers to sell our funds."
Link
Fidelity used to have a similar disclosure, but about 4 years ago switched to an "infrastructure" fee that obfuscates the cost. It recently won an appellate ruling that this was legal.
In any case, as @Observant1 stated, the $75 fee is applied to funds that won't pay for shelf space. In addition to D&C and Vanguard funds, Fidelity also charges $75 for some Schwab funds, including SNXFX and SWTSX.