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State Watchdog Asks Discount Brokers for Sales-Practice Info

January 12, 2018

The Massachusetts Securities Division has sent letters of inquiry to Fidelity, Charles Schwab Corp. and TD Ameritrade Holdings Corp. regarding the discount brokers’ sales practices in proprietary products, the Wall Street Journal reports.

The regulator confirms to the paper that the inquiries were made following a report the Journal published earlier this week alleging the brokers encouraged employees to peddle advice products that cost their clients more while benefitting the firm and the employees. A spokeswoman for TD Ameritrade tells the paper the firm “regularly” speaks to regulators but that its practice is to not discuss these conversations publicly. Reps for Fidelity and Schwab didn’t respond to the Journal’s requests for comment.

The paper spoke to dozens of employees at the three largest discount brokers by assets, and nearly all of them said the questionable practice of pushing the firms’ products over those that cost clients less was indeed in place at the companies.

“When new clients come to us with retail accounts at these firms, their service level tends to be very low and their portfolios are full of proprietary funds,” James Gambaccini, managing partner of Acorn Financial Services in Reston, Va., told FA-IQ earlier.

While Fidelity’s reps earn 0.04% of a client’s invested assets in most mutual funds and ETFs, they’re paid 0.10% for products such as annuities, managed accounts and referrals to independent financial advisors, which earn more for Fidelity as well, the Journal writes.

The brokers disclose employees’ compensation on their websites and tell the paper they have systems in place to ensure the reps put clients’ interests first and don’t improperly peddle any products or services.

By Alex Padalka
  • To read the Wall Street Journal article cited in this story, click here.