Fidelity Investment long ago made a name for itself in the mutual fund industry by providing a wide range of open-ended mutual funds that, at one time, were consistently ranked in the upper end of the mutual fund universe. Peter Lynch made Fidelity a household name back in the 70's and 80's with his stellar performance as manager of Fidelity Magellan, a fund that has fallen on hard times in recent years.
But what many investors don't know about Fidelity is that the firm is no longer a pure mutual fund company, having strayed from its roots as a producer and passive distributor of product to an active distributor of product back in the 1990s. The company currently runs a hybrid operation that now not only offers mutual funds directly to the public, but also pushes managed-money programs and other proprietary products through a broker network of its own. Now, since we're all educated consumers of financial products, we know that anytime a company is selling its own products to consumers through brokers that we have entered the "Conflict of Interest Zone!!!!!"
Apparently, many of Fidelity's own brokers are acutely aware of the conflict as well, given that dozens recently jumped ship, claiming that they were forced to leave because Fidelity was requiring them to obtain their certified financial planner certification. Now why would that cause a problem for the brokers? After all, obtaining a CFP certificate sounds like a step in the right direction for these sales people. It can't possibly hurt to require a stockbroker to actually get an education in investing before going out and peddling stocks to individuals can it?
Of course not, but the problem (as is usually the case) centered on compensation and disclosure. Apparently Fidelity wanted the brokers to get educated, but was continuing to prohibit them from disclosing to clients and prospects that a substantial portion of their compensation was commissioned based. Unfortunately for Fidelity, a CFP holder or candidate must disclose material conflicts of interest to clients and prospects, including compensation arrangements. So what was Fidelity's response to the dilemma? Did it choose to continue to require its brokers to obtain a CFP certificate in order to better serve clients, and then also begin disclosing compensation arrangements to clients?
Hah! Not a chance. Fidelity has decided to rescind the mandate to get educated and is instead no longer requiring its brokers to obtain the CFP certificate, thus preserving the commissioned based part of their compensation scheme (albeit back in the shadows once again) and allowing brokers to continue to profit handsomely from client transactions.
Caveat Emptor!
