Massachusetts has charged Fidelity Brokerage Services LLC with knowingly allowing unregistered individuals to act as investment advisors for Fidelity customers.
In an administrative complaint filed Monday, the state’s securities division alleges that for at least a decade, Fidelity let more than a dozen unregistered individuals use trading authorizations for more than 300 accounts, despite internal concerns that the individuals should be registered as investment advisors.
In July 2014, Fidelity began assessing the risks of allowing the individuals to oversee accounts, the state’s complaint says, and since the beginning of the year Fidelity has revoked trading authorizations for 13 individuals, several as late as last month.
Massachusetts says Fidelity cracked down on the practice only after the state subpoenaed the firm in June 2015.
Fidelity’s own procedures require the termination of a trading authorization if an individual “appears to be conducting advisory business … but is not registered with the SEC or at least one state,” the complaint says, citing Fidelity’s policy.
The complaint claims the firm was well aware that fees were being deducted from customer accounts and paid to the unregistered advisors. One such individual was paid $732,000 over 10 years.
In response to the state subpoena, Fidelity told state investigators that “the firm does not perform an analysis to determine whether or not the third party [with a trading authorization] is required to be registered. … To perform such an analysis is not within the purview of the firm nor are we aware of any requirement to do so.”
The firm’s “willful ignorance” in allowing unregistered persons to trade customer accounts put those customers at risk, according to the complaint, which seeks to stop further “dishonest and unethical conduct” by Fidelity, force the firm to engage a compliance consultant and pay unspecified fines.
“We do not believe that Fidelity has violated any laws or regulations,” said Fidelity spokesman Adam Banker in a statement. “We look forward to reviewing the details of this matter and addressing them appropriately.”