Government Probes Fidelity Over Obscure Mutual-Fund Fees

Boston-based firm characterizes so-called infrastructure fee as solution to ‘broken’ business model

.. By marking the charge as an infrastructure fee, the fund firms may be able to avoid disclosing it to investors.
.. Fund companies that decline to pay the amount will “be subject to a very limited relationship” with the company, the document says. Funds can either pay the fee themselves or push the cost onto investors in the mutual fund. This can increase the overall fees of a fund, causing individual investors to pay more and dent returns.
.. The fee is calculated as 0.15% of a mutual-fund company’s industrywide assets, not just on the dollar amount of assets held by Fidelity customers buying shares on the platform, the document says.

The infrastructure fee appears to be a way for Fidelity to make up for revenue the firm has lost as a result of investors flocking to reduced-cost mutual funds, a situation the firm refers to in the document as “unsustainable economics.” Fidelity also stated in the document that its traditional business model is “broken” and characterized the infrastructure fee as a solution to that problem.

.. The infrastructure fee is levied on lower-cost share classes such as those aimed at retirement accounts. The Labor Department has jurisdiction over retirement accounts that are subject to extra protections and disclosures under the Employee Retirement Income Security Act, or Erisa.

.. The document outlining the infrastructure fee, “Fidelity FundsNetwork Business & Services Guide,” is “not to be distributed to the public as sales material in oral or written form,” and “may not be shared with any third party.”

.. When a fund pays a fee that aims to result in the sale of fund shares, either directly or indirectly, securities laws require it to be part of what is known as a 12b-1 plan and to be disclosed to investors. Many lower-cost fund share classes don’t have 12b-1 plans—a reason why they are cheaper.

.. The Fidelity infrastructure fee is also the subject of a lawsuit filed last week in a Massachusetts federal court by a participant in a retirement plan offered by T-Mobile US, Inc. In that suit, the plaintiff contends that the infrastructure charge is prohibited under Erisa and that Fidelity incentivizes mutual funds on its platform to “conceal the true nature of fees associated with these funds.”

Why corporate America loves Donald Trump

American executives are betting that the president is good for business. Not in the long run

MOST American elites believe that the Trump presidency is hurting their country. Foreign-policy mandarins are terrified that security alliances are being wrecked. Fiscal experts warn that borrowing is spiralling out of control. Scientists deplore the rejection of climate change. And some legal experts warn of a looming constitutional crisis.

.. Bosses reckon that the value of tax cuts, deregulation and potential trade concessions from China outweighs the hazy costs of weaker institutions and trade wars.

.. the investment surge is unlike any before—it is skewed towards tech giants, not firms with factories. When it comes to gauging the full costs of Mr Trump, America Inc is being short-sighted and sloppy.

.. The benefits for business of Mr Trump are clear, then: less tax and red tape, potential trade gains and a 6-8% uplift in earnings.

.. During the Obama years corporate America was convinced it was under siege when in fact, judged by the numbers, it was in a golden era, with average profits 31% above long-term levels.

Now bosses think they have entered a nirvana, when the reality is that the country’s system of commerce is lurching away from rules, openness and multilateral treaties towards arbitrariness, insularity and transient deals.

.. so far this month 200-odd listed American firms have discussed the financial impact of tariffs on their calls with investors. Over time, a mesh of distortions will build up.

.. American firms have $8trn of capital sunk abroad; foreign firms have $7trn in America; and there have been 15,000 inbound deals since 2008. The cost involved in monitoring all this activity could ultimately be vast. As America eschews global co-operation, its firms will also face more duplicative regulation abroad. Europe has already introduced new regimes this year for financial instruments and data.

.. The expense of re-regulating trade could even exceed the benefits of deregulation at home. That might be tolerable, were it not for the other big cost of the Trump era: unpredictability. At home the corporate-tax cuts will partly expire after 2022.

.. Bosses hope that the belligerence on trade is a ploy borrowed from “The Apprentice”, and that stable agreements will emerge. But imagine that America stitches up a deal with China and the bilateral trade deficit then fails to shrink, or Chinese firms cease buying American high-tech components as they become self-sufficient

.. Another reason for the growing unpredictability is Mr Trump’s urge to show off his power with acts of pure political discretion.

  • He has just asked the postal service to raise delivery prices for Amazon, his bête noire and the world’s second-most valuable listed firm.
  • He could easily strike out in anger at other Silicon Valley firms—after all, they increasingly control the flow of political information.
  • He wants the fate of ZTE, a Chinese telecoms firm banned in America for sanctions violations, to turn on his personal whim.

.. When policy becomes a rolling negotiation, lobbying explodes. The less predictable business environment that results will raise the cost of capital.

.. Mr Trump expects wages to rise, but 85% of firms in the S&P 500 are forecast to expand margins by 2019

.. Either shareholders, or workers and Mr Trump, are going to be disappointed.

.. In a downturn, American business may find that its fabled flexibility has been compromised because the politics of firing workers and slashing costs has become toxic.

.. American business may one day conclude that this was the moment when it booked all the benefits of the Trump era, while failing to account properly for the costs.

Will a Corporate Tax Cut Lift Worker Pay? A Union Wants It in Writing

Speaker Paul D. Ryan, for example, said in a recent speech that “fixing the business side of our tax code is really all about helping families and workers,” adding that “cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.”

Yet few American companies have offered specific plans that support those promises. While many chief executives broadly praise Republicans’ efforts to cut taxes, few have detailed how they would deploy the savings from a corporate tax cut or put more money back in workers’ pockets.

The lack of pledges to create jobs has not been lost on President Trump’s top economic adviser, Gary D. Cohn, who seemed perplexed last week about the lack of corporate enthusiasm for a tax cut.

Mr. Cohn asked his audience of chief executives how many of them would invest more if the tax cut were passed. When only a few attendees raised their hands, Mr. Cohn asked: “Why aren’t the other hands up?”

.. Communications Workers of America asked several companies that employ its members to promise to give workers a pay increase if the cut in the corporate tax rate goes through.

..  corporate profit rates have been historically high since 2007, while business investment has been historically low,”

On Afghanistan, There’s No Way Out

When it comes to Afghanistan, we’ve tried everything. The lesson is: Nothing works.

.. We’ve tried “light footprint.”

.. We’ve tried big footprint.

.. We’ve tried nation building.

.. the United States had spent $104 billion on Afghan relief and reconstruction funds, most of it for security but also nearly $30 billion for “governance and development” and $7.5 billion on counternarcotics.

.. Result: As of 2015, more than three in five Afghans remained illiterate. Afghan security forces lost 4,000 members a month

.. The country ranks 169th out of 176 countries on Transparency International’s Corruption Perceptions Index, ahead of only Somalia, South Sudan, North Korea, Syria, Yemen, Sudan and Libya. Opium

.. We’ve tried killing terrorists. Lots and lots of them. As many as 42,000 Taliban and other insurgents have been killed and another 19,000 wounded

.. Result: The Taliban’s numbers in 2005 were estimated at anywhere between 2,000 and 10,000 fighters. Within a decade, those numbers had grown to an estimated 60,000 fighters.

.. We’ve tried carrots and sticks with Pakistan. In 2011, Washington gave $3.5 billion in aid to Islamabad.

.. American leverage with Pakistan has declined as Chinese investment in the country has surged, reaching $62 billion this year.

.. The group’s insistence that all foreign troops withdraw before it enters talks gives away its game, which isn’t to share power with the elected government, but to seize power from it.
.. What about two supposedly “untried” options: another surge, exceeding what Obama did in troop numbers but not limited by deadlines or restrictive rules of engagement; or, alternatively, a complete withdrawal of our troops?

But that’s been tried, too. Soviet forces in Afghanistan in the 1980s practiced a “bomb-the-stuff-out-of-them” approach to warfare, likely including the use of chemical weapons.

.. Between 1990 and 2000, tens of thousands of Afghans — as many as a million people, according to one estimate — died in three waves of civil war.

.. President Trump may think he’s trying something new with his Afghan policy. He isn’t. Obama killed a lot of terrorists. George W. Bush pursued what amounted to a “conditions-based” approach, without target dates for withdrawal. Both were often stern with Pakistan. Both conducted intensive policy reviews.

.. Even if we could kill every insurgent tomorrow, they would return, as long as they can draw on the religious fanaticism of the madrasas, the ethnic ambitions of the Pashtun, and the profits of the heroin trade.