Fidelity brokeragelink fund options

Best Investment Options With Fidelity BrokerageLink.

401k plans are slowly getting better. My plan added a low-cost collective trust. My wife’s plan added a self-directed brokerage account, also known as a brokerage window . Her plan is managed by Fidelity. Fidelity calls it BrokerageLink.

Some 401k plans managed by Charles Schwab also have this feature. Schwab calls it PCRA — Personal Choice Retirement Account.

How Does It Work?

Fidelity BrokerageLink is listed in the plan’s investment options just like another fund. She can designate a percentage of her ongoing payroll deductions toward it. She can transfer money between it and other funds. She can rebalance her plan account by saying what percentage of the total plan account should be in BrokerageLink.

Inside BrokerageLink, it’s just like a regular brokerage account, with its own account number. You can buy or sell pretty much everything you can with a regular brokerage account.

The "link" that connects BrokerageLink to other funds in the plan is a money market fund. Money going into or coming out of the brokerage account is put into or taken from the money market fund. From there, you place trades to buy or sell other mutual funds, ETFs, individual stocks and bonds, etc. This is similar to how Vanguard Brokerage Service works.

Because it’s a two-step process, it’s too much trouble to put a percentage of the ongoing payroll deductions into BrokerageLink and place trades twice a month. Instead, it’s easier to still put the ongoing payroll deductions into core funds. Transfer a chunk to BrokerageLink after the money builds up to a larger sum.

Other 401k providers often charge a high annual maintenance fee and high trading commissions for the self-directed brokerage account. A fee of $100 to $200 per year is quite common. Fidelity doesn’t do that. Its BrokerageLink has the same low prices as its retail brokerage accounts. There is no annual fee. Commissions are the same as retail:

Fidelity funds: free Treasury bonds: free new-issue brokered CDs: free select iShares ETFs: free Vanguard ETFs: $8 a trade.

The brokerage window opens up a world of good investment options. Prior to adding Fidelity BrokerageLink, my wife’s plan only offers two index funds: an S&P 500 fund and a US bond index fund. With Fidelity BrokerageLink, she will have many good options. I’m showing some of the best options here.

Spartan Index Funds.

Fidelity’s Spartan index funds are its answer to low-cost index funds from Vanguard. There aren’t as many as at Vanguard, but if you are limited to Fidelity, there are enough good choices. Notable ones include:

There are some newer Spartan index funds, but they are still too new for me to consider at this time.

iShares ETFs.

Fidelity has a joint marketing deal with iShares to make 30 iShares ETFs commission-free at Fidelity. iShares ETFs aren’t as cheap as Vanguard’s but they are good enough. If you purchase often, the lack of commissions will make up for the slightly higher annual expenses. Some notable ones include:

Vanguard ETFs.

Vanguard ETFs will cost a $8 commission per trade in BrokerageLink. It’s best if you transfer a chunk to the brokerage window, buy in one trade, and then hold them and select free dividend reinvestment. If you buy a large chunk, paying a one-time commission is better than paying a higher expense ratio every year to a similar iShares ETF. Some notable ones include:

With all these great investment options, Fidelity BrokerageLink makes a big difference to an average 401k plan.

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My employer added Brokeragelink a few months ago. I have used it mainly for buying iShares TIP. It is a nice feature overall, but has a few annoying delays and quirks:

1) New money arrives in BL a day after money contributed to the regular 401k core funds.

2) Transferring cash from BL back to the core funds requires a phone call (can’t be done online) and a day to transfer to the core money market fund, then another day to invest in the desired core fund. A core mutual fund exchange is an atomic transaction that happens all at once at the end of the business day.

3) There is no way to set up a standing order for ETFs, so I have to go in and trade manually every couple of weeks.

4) Fidelity’s own FullView (Yodlee-powered) doesn’t know how to count BL investments properly. It usually, but not always, double-counts them in my total investments and net worth.

All of these are fairly minor, especially when used for bond investments that don’t fluctuate much and in such a low-rate environment.

My broader concern is that Brokeragelink may give employers an excuse for not offering better low-cost core funds in their 401k’s. For example, my employer used to offer the VIPIX TIPS institutional fund (0.07% ER) in our 401k, but dropped it at the same time they added BL. Now they just tell us to use iShares TIP. Sure, an 0.20% ER is better than what most people have, but as long as we’ve got this paternalistic system of our employers pushing us towards specific investments… those employers ought to be using their influence and buying power to get the lowest-cost institutional funds for their employees.

I realize I might be accused of “making the perfect the enemy of the good here.” Overall, I think BL is a very positive development.

Dan – Thank you for sharing your experience with Fidelity BrokerageLink. As mentioned in the post, I think it works best when you transfer a chunk from the core funds to BrokerageLink as opposed to trying to invest new money into it. I didn’t know about your note #2: must call to transfer back.

I agree with your comments about employers (or rather the plan vendors) using brokerage window to silence the demand for better funds. They must know that very few employees will take the trouble to actually use the brokerage window. As a result, they get to keep the vast majority of the money in the more profitable core funds. But for those who do take the trouble, it’s a great feature.

TFB, you’re probably right. I like to get my money fully invested where I want it as soon as I have it, but my habit may be just a neurotic hassle in this case.

The first time I transferred money from BL to the core fund, I asked the Fidelity rep if I could do it online. He told me, “Boy, I wish you could. Everybody’s asking me.” Perhaps it’s something that will be fixed soon.

I guess that inattentive or uneducated investors will always be susceptible to paying too much. I just don’t want employers to use the accessibility of better options as an excuse to complacently default uninformed employees into crummy options.

I use the Schwab PCRA brokerage window. It’s an improvement over our 401K fund options, but I was disappointed to discover that most of the mutual funds available on a no-load, no transaction fee basis from Schwab are the more expensive actively managed funds. To buy an inexpensive index fund like Vanguard, I’d have to pay a $39 transaction fee.

Also, we’re only allowed to buy mutual funds, not ETFs, making it even harder to find inexpensive funds.

On the plus side, we can set up automatic monthly transfers to buy Schwab mutual funds.

Dan’s first comment describes my own experience, after over a year with the FBL option,

although I can’t attest to the standing order part. It’s true it requires a call to a rep to move.

funds back, although they have claimed for some time it should be the same as the transfer.

One additional point, although this may be specific to my plan: ask about funds lockup.

In my plan, certain transfers between “competing funds” can be prohibited for up to 90.

days. As transfers into BL are to the core account (FDRXX), the direct competitor on the.

other side is, of all things, the stable value fund. The one that most would think of as.

the “core” or “cash” account on the employer side, as there is no other MM like choice.

I think there might be other pairings as well, and you can’t “launder” by passing quickly.

through a non-competing fund. So far, we still have bond index and TIPS index with low.

cost, but they don’t provide a ticker or much more than daily, YTD, 1yr, etc., price history.

From conversations with co-workers, I don’t think BL is widely used where I am.

Good point, Edward. We have the “funds lockup” too. After numerous complaints, our 401k plan added a *separate* money market fund to the core, which is not subject to the lockup, so that money can be transferred between the core and BL without running afoul of it.

I don’t understand the rationale for the lockup at all. Just a seemingly meaningless bureaucratic hassle that’s easy to get snagged by. Is there some regulatory requirement for it?

The lockup is an artifact of the stable value fund. A stable value fund gives you an above-money-market interest rate while maintaining a stable value. In exchange, the investors must agree to keep the money there for some time. That’s the deal. Otherwise a stable value fund won’t work. It would have to either give you low yield like a money market fund or let the value fluctuate and potentially cause losses like a bond fund.

If a plan doesn’t have a stable value fund or if it doesn’t use the stable value fund as the conduit, you won’t have the lockup problem.

My concern would be for employees who might now “day trade” in their retirement accounts. Chasing one hunch after another.

Are there any restrictions on how much money can be placed in the brokerage window? The only reason I ask is that my 401k (through ING formerly CitiStreet) places limits on the amount of money I can place in the “self-managed account”: up to 75% of Traditional 401k contributions can be moved into the brokerage window, but NO Roth 401k money can be moved.

For that and other reasons I don’t currently use my plan’s brokerage window… but I’m just wondering if the contribution limit is ING-specific or not. Perhaps Fidelity and Schwab are more lenient in this department.

It’s plan-specific. In the plan I referred to in the post, she can transfer 100% of the balance into the brokerage window. She can also buy ETFs in addition to mutual funds.

I have access to BrokerageLink, but cannot trade ETFs. Thus, I have to pay the $75 fee to get into Vanguard funds — though I can then set up an auto-invest for $5 once I have a position, fire it once to move a chunk of money, and then cancel. Kind of a pain, but it works.

My BL plan *can* buy ETFs and *can* put 100% in BL, but… we could not buy treasury bonds as “individual securities” are deemed to be too risky. I can buy a 2x leveraged ultrashort ETF, but I can’t buy a single treasury bond issue? Go figure… :-p.

Nickel, your plan probably forbids ETFs (and individual stocks, I presume) based on similarly poor logic about risk and volatility.

Actually, my colleagues made a sufficient fuss about the no-treasury-bonds rule that management is supposed to be fixing it. We’ll get the ability to buy individual treasury bonds in BL (with no commission if bought at auction, I might add). If you make enough noise, you might get the no-ETFs rule fixed as well. Point out that iShares ETFs are low-cost and diversified index funds with no commissions?

For my plan, USTs via BL are no problem. In fact, other than FINPX, that’s all I’ve used it for, TIPS at auction. I don’t think USTs ever have a commission at Fido, auction or secondary, buy or sell, but you have to pay their spread on buy secondary/sell. Might apply to other govvies as well, but I’m not sure. No restrictions on percentage of balance in, or percentage of contribution going to BL ( I have done 100%) for me, as far as I know.

I think my 401k has changed recently; “STABLE VALUE” is no longer there, but now we have a “SHORT DURATION FUND” and another called “FID INST MMKT”. Might be because of the lockup issue, but I’m not going into either, so I don’t care.

Had a question for the group, does anyone work at Nstar/Northeast Utilities? I know they offer brokerage link,

and am trying to find out if every fund/etf/stock is available. I have heard some plans only allow mutual funds.

Thanks for the help.

Fees: $6.25/quarter = $25/year.

Do you know if there are any tax implications within the brokerage link account if you buy shares of stock and later sell the shares for a profit?

There are none, because it’s still within the 401k/403b plan.

I have account in vanguard and fidelity.

All in mutural fund target plan.

I ll retire soon.

Fidelity fee much more than vanguard.

Is it worth move some to vanguard for cheaper fee or keep them in fidelity invest etf with brokage account or keep it there?

If you’d like to consolidate, you can certainly move from Fidelity to Vanguard or from Vanguard to Fidelity. If you decide to stay with Fidelity or move your Vanguard account to Fidelity, check out Fidelity Freedom Index Funds: Hidden Gems For Your IRA, Solo 401k, or Brokerage Window. The fees on those Fidelity Freedom _Index_ Funds are comparable to the fees on Vanguard target date funds.

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401(k) plan review – Fidelity BrokerageLink.

In 2011, my company restructured our 401(k) plan. Previously, we had about 50 mutual funds and investments to choose from in the 401(k) plan. As you know, people can be paralyzed into making no decision at all when there are too many choices. I think 50 choices are way too much and many employees didn’t participate in the 401(k) plan. So the company revamped their plan to reduce choices and added the Fidelity BrokerageLink option.

With the new plan, we have about 13 investments plus target date funds to pick from in addition to the company stock. If the employee did not make investment elections, then their contributions default to the target date funds. I think this is good for many employees. It’s easier to choose from a smaller pool of investments and if the employee doesn’t know much about investing, they can still benefit from the target date funds. There was a huge outcry when this plan was introduced because employees thought that their choices would be limited. However, this is not the case because of the Fidelity BrokerageLink option.

From what I understand, the Fidelity Brokerlink plan is a bit different for every company so check your documentation if you have any questions. The plan opens up a huge number of options for me. I can access nearly 5,000 mutual funds that are listed on the Fidelity FundNetwork and any ETFs . Unfortunately, my plan does not include stocks.

FundsNetwork NTF Funds: no transaction fee and no load. There is a $75 short-term trading fee if you held the funds for less than 180 days. Once you place 15 short-term trades in 12 months, Fidelity will charge a transaction fee each time you trade for the following 12 months. Basically, if you are a frequent trader, you’ll pay plenty of transaction fees. FundsNetwork TF Funds: $75 transaction fee per investment. ETF: $7.95 per trade.

Many of the Fidelity’s low management fee Spartan funds are NTFs and would be a good choice for long term investors. However, I am more familiar with Vanguard and Fidelity BrokerLink enables me to purchase Vanguard ETFs. I like Vanguard’s low fee business model and their wide selections of ETFs.

It’s easy for me to pick a sector or market segment and then purchase the corresponding Vanguard ETF. I was low on small cap and emerging market, I added VB and VWO over the last few months.

To minimize fee, you can stash your contribution in a Fidelity total market fund (NTF) and then convert it to an ETF after 180 days. For example, if you contribute $200 every paycheck, then it doesn’t make sense to pay the $7.95 fee and purchase an ETF every 2 weeks. I think it’s better to save up in a NTF Fidelity fund for 6 months to about $2,400 and then buy a batch of ETF.

All in all, I’m quite happy with the Fidelity BrokerageLink account. I suspect it’s partially due to the nice 6 months we’ve had in the stock market. What about you? Are you happy with your 401(k) plan? Do you think you would be better off with the Fidelity BrokerageLink account?

If you don’t have a Roth IRA account, you should open one to give yourself the more options in the future. Open an E*TRADE Roth IRA. No Fees. No minimums and get up to $600 when you rollover or transfer.

Well done you for using the Fidelity BrokerageLink platform. Tell me, what are you doing to limit your downside risk in the account?

I can set up trailing stop limit orders, but I haven’t done so.

My philosophy on the 401(k) is to rebalance it to my asset allocation. If the market goes down, I just keep buying more shares to average the cost.

Good for you! In my opinion, if your 401K provider is either Vanguard, Fidelity or Schwab you are lucky. All are stellar companies with a good selection of low cost funds.

I’m quite happy with the change. I didn’t like the choices previously. There were too many bad choices.

Ditto what MoneyCone said. I am grateful that my company offers a 401K, but I wish it had more low cost, index fund options. I still contribute as much as I can though, because when I leave to go back to school, I can roll over all that money into my accounts at Vanguard.

I’m thinking about rolling over to Vanguard once I leave my job too. I need to research a bit more.

My company doesn’t even match the 401k contributions so I don’t contribute (I put the money towards real estate instead). Sounds like your plan is pretty good though!

Sorry to hear that. Don’t you think the tax advantage is worth contributing to the 401(k)?

Real estate is another great choice.

I think that it’s great that if you dont make a fund election, it defaults to target date. I’d imagine that there’s a lot of people out there who started filling out paperwork then got overwhelmed by the choices and quit.

man, I wish I had 401(k) options — that sounds great! Right now, I’m investing in an IRA…

Roth IRA? That’s even more flexible, but no matching. 🙁

We have definitely had a good stock market for the last 6 months; I like your strategy of buying larger amounts less frequently, provided that someone has the necessary discipline.

My 401(k) plan has a good selection of Vanguard index funds, though at the investor shares level. This means I have access to the following core funds:

1) Vanguard 500 Index Fund Investor Shares.

2) Vanguard Total Bond Market Index Fund Investor Shares.

3) Vanguard Total International Stock Market Index Investor Shares.

4) Vanguard Retirement Savings Trust (stable value)

I also have access to all of Vanguard’s target date funds and a bunch of other active ones from other brands that I ignore, except when I get mail saying that the plan has swapped one active fund for another one and I laugh and wonder why I would care about that.

I really have no interest in a BrokerageLink type option in my 401(k) at this time since I have access to such great Vanguard funds. It would be nice if we had the Total Stock Market Index Fund in our 401(k) or a REIT index fund, but other than that, I’d say I’m pretty lucky to have the options in my employer’s 401(k) plan.

We had only a few Vanguard funds previously. I like it much better now that I can buy ETFs.

It’s great to hear that you are happy with your 401(k). Many people are dissatisfied and don’t contribute.

The 401k plan available through my work is so-so. They offer about a dozen choices plus a dozen more target date funds. I’d like to see sector and commodity funds, but they just don’t have them. We also have another deferred comp plan that has more choices, but I don’t contribute to this one.

I don’t think many 401k plans offer that level of flexibility. (sector choices.) That’s why I like BrokerageLink so much.

I am also using Fidelity for my fund needs. For 401 (k) I am with my employer provided brokerage which is wells fargo.

How do you like the Wells Fargo plan?

I had a 403B with Fidelity which I just converted to an IRA. I have a brokerage accounts with Fidelity and Vanguard. My current 403B with TIAA-CREF and I have accounts (IRAs) with Charles Schwab. Overall, I have a good choice of funds, stocks, and ETFs.

The market has come back since the crash of 2008, but certain sectors are still lagging.

Good developments for you, RB40. The limited choices in 401K mutual funds is something that I’ve always thought of as a drawback. Our own plan with Hewitt allows for 50% of the total funds to be converted to a self-directed brokerage account. The only limitations in this account are no options trading and no foreign securities (ADRs excepted).

Your plan sounds good too and you can buy individual stocks. I like self-directed.

Like the way you laid it all out here..

It is such a challenge (at least for me) to figure out where to put extra cash in today’s economic climate.

We have a tendency to stick w real estate.. not saying it’s the best plan.. it’s just what we know.

I like real estate too, but I think it’s still good to diversify.

Good point about having too many choices. Sometimes it can get a little overwhelming. Your post reminded me to rollover my old 401k. Thanks!

You definitely need to rollover your 401k. Don’t leave it at the old company since you never know when they will change the plan.

Joe Udo retired from his engineering career to become a stay at home dad/blogger at 38. Read the whole story on the About Page.

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