Is Fidelity Investments Safe?
Are you considering opening a trading account with Fidelity Investments? Do you have anxiety about the company’s safety and dependability? Keep reading. We’ve done the research, and we have all the answers you seek.
Fidelity’s History
Edward C. Johnson II founded Fidelity Investments in 1946. The Johnson family continues to control the company to this day, owning 49% of the shares. The company is not publicly traded.
In 1974, Fidelity created the first money market mutual fund to offer checkwriting. A year later, the brokerage firm launched its first IRA. In 1984, Fidelity began offering its customers the ability to trade stocks using a computer. In 1995, the company created a website.
Today, Fidelity is one of the largest brokerage firms in the United States, far surpassing many of its rivals in client assets and number of accounts.
Size of Fidelity
There are more than 30,000,000 Fidelity customers with about twice as many open and funded brokerage accounts. These accounts place roughly 600,000 trades every single market day and hold about $3.31 trillion in assets. Yes, that’s trillion with a t. Approximately $3 trillion of this total is in discretionary assets or accounts.
To service its clients and the huge treasure chest they create, Fidelity employs about 40,000 people. The broker is headquartered in Boston, but has 10 regional offices in other states, and nearly 200 branch offices, too.
Besides its retail accounts, Fidelity also works with employers to provide retirement account services. Furthermore, Fidelity has a large institutional client business.
Is Fidelity Legitimate?
Fidelity is a member of 2 very important regulatory bodies that ensure the safety of America’s financial markets. The first is FINRA, which is a private group established by the federal government. FINRA is responsible for drafting and enforcing rules that brokerage firms must follow. Fidelity’s FINRA ID # is 7784.
Fidelity’s FINRA profile shows 132 disclosures since 1979. While this may sound like a lot of events, it boils down to just over 3 per year, which isn’t much at all.
Some of the events include maintaining registrations for people who no longer worked for the broker, not adequately managing books and records, and not sufficiently listing municipal securities offerings. In these cases, Fidelity did not deny or admit to any wrongdoing, but paid a fine to settle the allegations.
Fidelity is also registered with the Securities and Exchange Commission with ID # 8-23292. The brokerage firm is registered in the District of Columbia, the 50 states, the Virgin Islands, and Puerto Rico.
The SEC is America’s primary law enforcement agency for the securities industry. Along with FINRA, it is tasked with ensuring that ethical and legal protocols are strictly followed.
Fidelity and Competitors
SIPC/FDIC Insurance
On top of regulatory supervision, Fidelity is also a member of the Securities Investor Protection Corporation (SIPC). This is the big insurer of America’s broker-dealers. While SIPC was erected by Congress, it is now a private organization that is funded by member firms, one of which is Fidelity.
Fidelity’s SIPC insurance means that every brokerage account is protected up to a certain limit. Currently, that amount is $500,000 per customer (not per account). Half of this limit can be applied to free cash balances. A money market mutual fund is considered a security, not cash.
One important caveat is in order here: SIPC’s $500,000 policy only applies to the number of shares held in an account. It does not protect against a drop in share price.
For example, if you’re holding 500 shares of Johnson & Johnson (JNJ), and the stock price goes to $0, SIPC wouldn’t give you a dime. The insurance is only good up to the share price with a max of half a million dollars.
Is Fidelity FDIC Insured?
Fidelity has an FDIC-sweep program that moves free cash balances to banks it has partnered with. While cash is sitting in these financial institutions, the money is FDIC guaranteed. Normally that guarantee would run $250,000; but Fidelity sweeps cash into multiple banks, generating an insurance limit of $1,250,000.
For securities, Fidelity has taken out a secondary private policy with Lloyd’s of London. The policy has a brokerage house limit of $1 billion with no per-customer limit. The supplementary policy has a $1.9 million limit per customer for cash. Fidelity’s auxiliary insurance policy is the largest we have seen in the U.S. brokerage industry.
Fidelity’s BBB Rating
The Better Business Bureau has a profile for Fidelity on its website. The brokerage house does not have BBB accreditation, most likely because it simply hasn’t applied for it. Companies are not required to apply for BBB accreditation.
BBB gives Fidelity a grade of C-. The highest possible grade is an A+. The major reason the analyst gives for issuing such a low grade is that 45 complaints were filed against Fidelity that were not resolved. According to BBB’s records, 322 complaints were closed in the past 3 years; while 135 were closed in the past 12 months.
There are 74 reviews of Fidelity at BBB. The average rating is one star out of five. While this is another low score, it represents a very small percentage of Fidelity’s customer base. Remember that Fidelity has in the region of 30 million customers.
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Judgment: Is Fidelity a Scam?
Fidelity is most certainly not a scam. It is one of the most reliable and trusted brokerage firms available to American investors.
Keep in mind, though, that investing is never an exact science; and it’s possible to lose money in the securities markets with any firm. Fidelity cannot guarantee the future price of any investment you purchase, which means there is a level of risk in investing that does not exist with a bank account.
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