Corporate & Securities Law

SNSFE Investigating Claims of Fidelity Brokers That They Were Pressured To Sell Proprietary Products And Pressured Not To Disclose The Conflict To Customers

By James Eccleston

Dozens of brokers serving Fidelity Brokerage Services' most affluent clients left the firm last year, claiming they were handcuffed by a requirement that they obtain certified financial planner certification while being prohibited from disclosing that part of their bonus compensation was tied to selling managed-money programs and other proprietary products.  That's according to a recent article in Investment News.

The Certified Financial Planner Board of Standards' new code of ethics and professional responsibility requires certified planners to tell clients of material conflicts of interest, including compensation arrangements.

Fidelity brokers receive about half their compensation in salary and half in bonuses keyed to customer experience surveys, growth of assets and managers' assessments - with the latter two weighted most heavily.  Brokers and a person close to the firm said that Fidelity had been agnostic about product type in the assessment and growth components until last year, when new management began emphasizing high-margin money management and insurance products after a surge of money market assets flooded in.

"All products are treated equally, including money markets," said Fidelity's representative and that only 9% of a broker's total compensation is tied to product sales.

However, as in most companies, bonuses are tied largely to managers' reviews, and 50% to 60% of those assessments in last year's compensation plan were tied to sale of selected investments.  Another 10% to 20% of the assessment was keyed to a rep's semiannual sales of online financial plans, 20% reflected the supervisor's view of client relationship skills, and 10% was keyed to compliance and teamwork qualities, said a broker citing a 2008 memo.

Brokers said they were pushed hard to sell Fidelity's own life insurance products, particularly annuities, and Portfolio Advisory Services, a program managed by a Fidelity-run registered investment adviser that invests in Fidelity mutual funds or a mix of proprietary and external mutual funds.  One said he had to hit about 80% of his sales target in PAS and annuities to qualify for the investment part of the manager bonus and to avoid a letter of warning about employment.  He asked not to be identified.

"It was very much about selling the PAS product and insurance," said a broker who left Fidelity.  Another said, "We were told to say we were product-agnostic, but a quiet gun was pointed at your head."

Some brokers said they were tracked weekly and, as in many sales organizations, told how they measured against their peers in productivity to stir their efforts.

SNSFE continues to investigate these matters on behalf of registered representatives who feel they have been wronged.  Those with knowledge or those who have been wronged should feel free to contact attorneys at SNSFE.

Source:  InvestmentNews

Full post as published by FinancialCounsel on April 14, 2009 (boomark / email).