How Does Fidelity Investments Make Money

How Fidelity Makes Money?

No brokerage firm in the United States is government subsidized, so they all must find some way to remain afloat. They do this by charging for certain products and services, some of which may surprise you.

The most publicized method of bringing in revenue is the firm's stock and ETF commission. This is what the broker advertises heavily. Fidelity's is now at $0 so it cannot make money on these securities.

Other securities usually have a commission when they are bought or sold. Option contracts, for example, have a 65 cents per-contract fee; while the majority of mutual funds at Fidelity cost $49.95 to buy (high comparing to $0 at Firstrade or $19.95 at Etrade).

The last time you bought a new corporate bond at Fidelity, you may have noticed that you weren't charged any commissions and concluded that fixed-income securities are free to trade. But how wrong you were. Fidelity is compensated by the issuers of these securities for providing them to its customers.

Similarly, mutual funds that are free to trade at Fidelity may pay the broker a fee for being included in the broker's commission-free lists.

Besides (legal) kickbacks and commissions on trades, brokerage accounts at Fidelity come with several fees. Traders have complained about some of them. One in particular is the $50 IRA closeout fee. Yes, you have to pay this amount to close your Fidelity retirement account. SIMPLE IRA's also have a $25 annual fee.

If a mutual fund in a Fidelity account has a balance under $2,000, the broker will charge a $12 annual fee. Most other firms don't charge for low balances in mutual funds.

Margin is available at Fidelity. The broker charges 8.325% right now for debits under $10,000. This is higher than other brokers' margin schedules. Webull, for example, charges just 6.99%. Because many traders take advantage of margin privileges, Fidelity can earn a sizeable income from this feature.

Managed accounts are another source of income for the broker. Every managed account Fidelity offers, including its robo-advisory service, carries an annual percent-based fee. Accounts start at 0.35% and go as high as 1.50%. Because these accounts have minimum balances, some of them as high as $2,000,000, the asset-based fee can translate into a nice source of revenue.

How does Fidelity make money

Fidelity vs Competitors

How Fidelity Does Not Make Its Money

Despite all the avenues that create revenue for the company, there are still many freebies. The broker sends out checks and Visa debit cards free of charge. Obviously, it doesn't make any money there. Its 24/7 customer service is also free to use, and a basic level of investment advice can be obtained over the phone at no charge. There is also no cost to watch Bloomberg business news in HD on its mobile app. Although the company brings in a lot of revenue, it offers many services for free.

TD Ameritrade vs Fidelity Overview

TD Ameritrade (TDA) and Fidelity Investments are two very popular brokerage firms who attract a lot of customers and offer an array of financial products. So which is better: TD Ameritrade or Fidelity Investments? Let's find out.

Cost

Broker Fees	Stock/ETF Commission	Mutual Fund Commission	Options Commission	Maintenance Fee	Annual IRA Fee
TD Ameritrade	$0	$49.99	$0.65 per contract	$0	$0
Fidelity	$0	$49.95	$0.65 per contract	$0	$0

Services

Open Account

TD Ameritrade: $0 commissions + transfer fee reimbursement.
Fidelity Investments: Get $0 stocks commissions.

Pricing, Fees, and Account Minimums

TD Ameritrade's and Fidelity Investments' charge for trading stocks and ETF's is $0. For options, both brokers charge an extra $0.65 per contract.

Placing a trade with a human broker costs $25 at TD Ameritrade, while doing the same at Fidelity is a somewhat costly $32.95.

TD Ameritrade offers All ETFs commission-free, while Fidelity has a selection of 550+.

Brokerage accounts at both TD Ameritrade and Fidelity carry no inactivity fees or account maintenance fees. The minimum initial deposit to open a brokerage account at Fidelity is $2,500, while TD Ameritrade has no minimum. Both brokers also offer no-fee IRAs.

The two brokers are pretty even in this category.

Mutual Funds

Fidelity offers more than 10,000 mutual funds, of which less than a thousand carry no-load and no transaction fee. Mutual funds that carry a transaction fee of $49.95 per purchase.

TD Ameritrade has more than 13,000 mutual fund offerings, of which 4,200 carry no transaction fee and no load. Transaction fee funds carry a very pricey $49.99 charge.

Overall, the two brokers are even in this category, too.

Can You Buy Fidelity Funds On TD Ameritrade?

For readers who are wondering "Can I buy Fidelity funds through TD Ameritrade?", we have the article exploring this topic in detail under this link (the short answer is "yes").

Research and Education

Fidelity offers extensive research for ETF's, stocks, options, and mutual funds. Customers have access to free reports from Zacks, Morningstar, S&P Capital IQ, Thomson Reuters, and others. Investors will find a useful research tool for more than 60,000 fixed-income offerings. Also available on Fidelity's web site is useful information on IPO's and annuities. The broker also has a virtual learning center where investors will find videos, articles, and webinars on a wide range of topics.

Ameritrade vs Fidelity

TD Ameritrade offers detailed research for stocks, options, ETF's, and mutual funds. Customers have access to free stock and ETF reports from Morningstar, Credit Suisse, TheStreet.com, S&P Capital IQ, and other independent researchers. The broker also provides its customers with Investools, which offers courses at the beginner, advanced, and expert levels on a variety of financial topics, such as forex, options, and stocks.

This category produces another dead heat.

Customer Service

TD Ameritrade has phone service staffed 24/7. Representatives are available certain hours of the day who speak Spanish, Cantonese, or Mandarin. The brokerage has more than 450+ brick-and-mortar branches located across the United States for old school investors who want more personal investment assistance.

Fidelity can be contacted via an on-line chat system, phone, fax, or e-mail. The phone service is staffed 24 hours a day, 7 days a week. The chat service is on-line from 8:00 am to 10:00 pm EST. Fidelity also offers a lengthy list of phone numbers for customers traveling outside the U.S., from Albania to Zimbabwe and everywhere in between. Fidelity also has more than 100 branch locations.

Pretty close here.

Trading Tools

TD Ameritrade offers two different platforms, both with free Level II quotes. First is the standard web site, which is user friendly. Second, there is Thinkorswim. This platform is a stand-alone program. It offers stock analysis, market news, account info, and order entry. All platforms are free to use with no frequent trader requirement.

A great tool that TD Ameritrade offers is their paperMoney, a trading practice platform within Thinkorswim that allows traders to simulate trading with virtual currency.

Trading securities at Fidelity is trouble-free with the broker's standard web browser platform, which includes a handy trade ticket. Fidelity also offers Active Trader Pro, an advanced trading platform for active traders.

Because of more advanced trading tools which are available to all customers, this category goes to TD Ameritrade.

Mobile Trading

Fidelity has applications for iPhone, iPad, Android, and Windows Phone 8. The interface is intuitive and user friendly. Users can transfer funds between Fidelity and non-Fidelity accounts, make a mobile check deposit, place trades, pay bills, and contact customer service.

TD Ameritrade has three different apps for clients with every experience level: Mobile App for beginners, Mobile Trader App for intermediate level investors, and a Thinkorswim app for experienced, active traders. They can be used on iPhone, iPad, and Android.

TD Ameritrade wins in this category.

Cash Management Features

TD Ameritrade offers a checking account with free checks, a free Visa debit card, and no monthly account fees. ATM fees are reimbursed nationwide. The account balance is deposited in up to two FDIC insured banks, doubling the default $250,000 insurance.

Fidelity offers their clients the Cash Management Account, which comes with checks, deposit slips, online images of all cleared checks, and a Visa Gold debit card, giving the account all the benefits of a traditional checking account, and actually more.

The account offers FDIC insurance up to $1,250,000. It does this by sweeping the cash balance into a maximum of 5 independent program banks, each offering the standard $250,000 protection.

Fidelity is the winner here.

Additional Features

TD Ameritrade offers forex and futures trading, while Fidelity does not. Fidelity has a greater emphasis on global investing, giving traders 25 national exchanges in 16 different currencies.

Pretty even here.

Open Account

TD Ameritrade: $0 commissions + transfer fee reimbursement.
Fidelity Investments: Get $0 stocks commissions.

Results

There were four ties, TD Ameritrade was victorious in two categories, and Fidelity was victorious in one category. TD Ameritrade wins by a small margin and it is our recommendation to most investors. Fidelity Investments is, obviously, the way to go for those looking to invest mostly in Fidelity-family mutual funds.