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Old 06-24-2011, 06:31 PM   #1
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Brokerage Accounts

There is another thread going on about Vanguard versus Fidelity and related safety and costs. But it made me think. About 3 years ago, I opened a Fidelity brokerage account and consolidated all my holdings there. I own Vanguard, TRP, Fidelity, Janus, PIMCO, and other mutual funds and ETF's, along with some stocks. They are all held in my Fidelity brokerage account and it is great to have everything consolidated in one place. And Fidelity's web site and tools are terrific. I am still diversified between fund companies, asset classes, etc.

My quesiton is - how does Fidlelty make money from me, other than obvious trading costs - which I have very little of? Do they receive something from the mutual fund companies that I hold? I know they think that I might be inclined to buy Fidelity funds over others, but they sell many other funds at no cost as well - and again, I am a buy and hold investor.
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Old 06-24-2011, 09:46 PM   #2
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For the mutual funds that have 12(b)-1 fees, Fidelity will get a portion of those fees. Fidelity gets the expense ratios from the Fidelity funds you own.

If you have any money in a Fidelity money market fund, Fidelity makes money on the spread between what it pays you and what it earns on your money.

Fidelity is a good broker, but I would only use the commission-free ETFs and the Fidelity Spartan index funds. And that's what I do in my 401(k) at Fidelity.

I would guess that all the funds that Fidelity sells at no cost have 12(b)-1 fees. Those Vanguard funds do not have 12(b)-1 fees, but they have a hefty commission to buy them at Fidelity.
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Old 06-24-2011, 10:27 PM   #3
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Fidelity sells a very wide range of funds, many without 12(b)-1 fees, and quite a few without transaction fees as long as you hold shares for 180 days. The transaction fee otherwise is $75 when buying a fund, selling is fee-free. So it's not too bad if you can buy in large chunks. I like it better than $20 per transaction buy or sell.

They do have an agreement with iShares so they get something, even without charging commissions on specific ETF's. I imagine they get the same kind of thing with mutual funds, 12(b)-1 fees or not.
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Old 06-25-2011, 05:15 PM   #4
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Originally Posted by Packman View Post
My quesiton is - how does Fidlelty make money from me, other than obvious trading costs - which I have very little of? Do they receive something from the mutual fund companies that I hold?
"Soft dollars" among the fund companies.

Fidelity is also as much as 10% of the daily market volume. They don't have to make much on each transaction...
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Old 06-25-2011, 06:04 PM   #5
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Fidelity is also as much as 10% of the daily market volume. They don't have to make much on each transaction...
The Golden Crumbs add up to quite a pie.
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