Skip to Content

Fidelity Is Reportedly Facing a Government Probe Over Hidden Fees

Fidelity Investments is facing a Labor Department probe into a supposedly hidden fee that could take a significant bite out of investors’ returns, according to a new report from the Wall Street Journal.

Fidelity runs an asset management platform called FundsNetwork that thousands of third-party 401(k) plans use to reach the company’s customers. The fee, reportedly implemented in 2016, is 0.15% of the total assets a plan has, whether those assets are from Fidelity customers buying shares or not. Funds can pay the fee themselves or pass the cost on to investors.

A small increase in fees can result in a larger loss of investment income over time. For example, a 1% fee on an account into which an investor adds $10,000 a year for 40 years could cost hundreds of thousands of dollars in lost returns, according to the financial information site NerdWallet.

Vincent Loporchio, senior vice president for corporate communications at Fidelity, said in an email to Fortune that the company “fully complies with all disclosure requirements in connection with the fees that it charges” and that all fees were disclosed to 20,000 401(k) plans. Investors buying shares of those funds would have to be told about the fee by the funds themselves.

“[S]ystems and processes are needed for recordkeeping, trading and settlement, making available regulatory and other communications, and providing customer support online and through phone representatives,” Loporchio said. “It is costly to maintain this kind of infrastructure and Fidelity is entitled to be compensated for those costs.”

According to the Journal, the fees are also a way to help offset revenue lost as consumer move toward low-cost mutual funds. Fidelity reduced fees in 27 different of its index funds in 2016.