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Tuesday, June 15, 2004

Fido Tells Intermediaries to Get Onboard

Reported by Theresa Sim

Fidelity is giving intermediaries until Dec 31 to build out capability to charge redemption fees at the individual investor level, the firm disclosed in a comment letter dated June 4.

Intermediaries were notified of the policy in late 2003.

Fidelity will pay Fidelity funds an amount equivalent to redemption fees that would have been charged if the policy was effective on April 1.

Fidelity currently charges redemption fees on more than 130 funds. The fees range from 0.25 percent to 2.0 percent, with holding periods of 30 days to two years.

In the comment letter, Fidelity executives urge the SEC to modify its current redemption fee proposal. David B. Jones, senior vice president at Fidelity, and Eric D. Roiter, senior vice president and general counsel of Fidelity, oppose an across-the-board two percent fee on all funds.

After years of experience with redemption fees (they maintain the fund family has had redemption fees on one or more of its funds since 1989), they contend redemption fees are effective, but should be applied on a case-by-case basis.

Fidelity advocates for a requirement for fund boards and sponsors to consider redemption fees, but not to require redemption fees on all funds. For instance, Jones and Roiter make the case that there is little need for fees on low volatility funds.

Nor does the redemption fee amount need to be consistent across the board, they state. Jones and Roiter note that a two percent redemption fee may not be a high enough hurdle to deter profit-seeking timers in international funds, but may be too high for bond funds.

Other firms are approaching the omnibus issue with more reservations.

A Franklin Templeton spokeswoman told the Boston Globe that "[we] are working with financial intermediaries to help them develop systems capable of supporting redemption fee policies. Whether or not financial intermediaries will actually be able to do so in the near future remains an open question," reported the Globe.

Janus said it would not assess fees on intermediaries lacking "operational capacity," and AIM Investments said it may be "severely limited" from assessing redemption fees on omnibus accounts, the Globe reported company spokespeople as saying. 

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