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Fidelity Brokerage Link Review

Fidelity 401k Brokerage Link Account Overview

The Fidelity 401k BrokerageLink (Fidelity’s version of a self-directed 401k within a managed 401k account) is one of the best brokerage windows offered on the market today. First off, it is important to know that an investor can only have a BrokerageLink account if they have a company sponsored 401k account that allows for the BrokerageLink. The BrokerageLink account functions as a regular trading account (brokerage window) that allows the client to move portions of their 401k money into a trading window but still keep it as part of their 401k retirement accounts. This is great for people who want to have a little more day to day control of the investing process.

There are some restrictions to the use of this account (e.g. no option trading or shorts) but in general, it allows for a great deal of flexibility. The following Pros and Cons can provide a little insight to the investor who hasn’t utilized a brokerage window in the past.

Fidelity Brokerage Link Pros

BrokerageLink is a service provided by Fidelity. Some investors might be thinking that this isn’t necessarily a pro, but there various reasons why it adds value to the comprehensive package of a BrokerageLink account:

  • Dedicated customer service (via the 401k Team)
  • Low per order cost - $4.95 per online trade (compared to Scottrade - $6.95)
  • Easy to use interface and stock performance layout
  • Retirement planning tools
  • Up to date news and market analysis
  • Services regarding investment analysis and financial planning for free

Fidelity’s staff are licensed brokers with their Series 7, so they are able to provide insight beyond the traditional customer service representative.

Fidelity 401k BrokerageLink allows flexibility in investment opportunities. Most of the time, the investor cannot actively manage the investments in a 401k portfolio and are forced to select predetermined retirement funds, company stock plans, indexes and etc. BrokerageLink enables the investor to make the following investment decisions when purchasing stocks, ETFs and other funds. Buy/Sell, Open Market Orders, Stop Loss, Limit Orders, and Trailing Limit/Loss orders.

Utilization of a lot of these functions is a HUGE plus for the traders who are interested in active management of their portfolio and allows a level of diversification that it not achieved in a managed fund.

Fidelity’s fee structure for the BrokerageLink account is extremely simple. Fidelity only charge fees on the orders placed by the investor. They went from a $7.95 per trade to the $4.95 per trade and it really makes a difference on the bottom line. Mutual funds are the same $49.99 ($75 for some funds). Here are the rates, per transaction, of some of the competitors in their self-directed 401ks.

Charles Schwab - $4.95 per online stock or ETF trade; $76 to buy a mutual fund.

Scottrade - $6.95 per online stock or ETF trade; $17 to trade a mutual fund.

Ally Invest - $4.95 per online stock or ETF trade; $9.95 to trade a mutual fund.

Fidelity 401k Brokerage Link Review

Fidelity Brokerage Link Cons

Most of the cons revolve around some of the inherent limitations of the account. These aren’t typically controlled by Fidelity, but rather, are set by the sponsoring company of the investor’s 401k or by rules set by the government.

Maximum of 50% of 401k cash can be moved into the BrokerageLink account. To be clear, that means that at any one time if the portfolio is more heavily weighted on the BrokerageLink side; cash cannot be added to it. Hypothetically, if the value of the BrokerageLink account were to sky rocket due to a successful investment; the investor would not be able to add cash into the BrokerageLink account until the total value of the portfolio balances itself. See the example below.

No opportunity to trade options. Now for some people, this doesn’t matter at all. A lot of people don’t have an understanding of the basics of options and that is entirely FINE. The smart investor doesn’t need to stress about this aspect because it is just another vehicle that people utilize to make trades and etc. This option is not typically offered in the majority of 401k plans anyway so it is not a major differentiator.

No method to sell short. The pessimistic investor will be amiss here as there is no way for the investor to short stock, funds, etc. A great deal of investors rely on this as an investment strategy but they will need to find another outlet for their investments.

Limitations on Stock Purchase. Each sponsoring company defines what restrictions are in place for the investor’s BrokerageLink so there are limitations as to what stocks can be selected. Frequently, there are restrictions on penny stocks trading below $1.

Slow Update on Stock Split Information. Most services tend to have a lag time with the quoting of stock prices and information after a split or reverse split. If day traders plan on using the BrokerageLink account, this could negatively/positively impact an investment strategy so keep this in mind when evaluating the options.

Fidelity 401k Brokerage Link Review

Fidelity Brokerage Link Review Summary

Despite these Cons, there is a strong argument for the use of the 401k BrokerageLink. Most active investors don’t enjoy being limited by the managed fund options. In the case of the Fidelity BrokerageLink account, there are no major fee differences (less than 5%) between the managed fund and the BrokerageLink assuming the investor is not a day trader (higher number of transactions means more transaction fees). This account allows for a more customizable investment strategy, and the investor is able to utilize all the benefits of the Fidelity platform.

Fidelity Brokerage Link reviewed by on . Rating: 4.5

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