Fidelity To Restrict Fund Marketing

Discount brokerages no longer will be able to distribute Fidelity Investments’ most popular mutual funds under a shift in marketing strategy set to take effect in January, Fidelity announced Friday.

The plan gives Fidelity more control over distribution of its so-called retail funds, which include its popular Magellan, Puritan and Growth and Income funds.

While its Advisor group of funds will continue to be available through third-party distributors, the retail funds will be distributed directly to customers, with few exceptions, by Fidelity itself.

Fidelity said it was making the shift to eliminate inequities among outside parties who sell its funds.

Under the present system, small investors could buy Magellan and other retail funds through discount brokers like Charles Schwab & Co. Inc. but not through full-service firms like Merrill Lynch. Those brokerages only could market the Advisor funds.

After Jan. 1, those investors already holding Fidelity retail funds through Schwab and other discount brokers will be able to continue adding shares.

The move was not expected to hurt Schwab; of the $70 billion in mutual fund assets it markets, Fidelity funds comprise about 3 percent.

Fidelity has 167 retail funds, which had $179.7 billion in assets at the end of last year. The 22 Advisor funds, marketed through third-party professionals, had $27.2 billion in assets as of the end of March.

Buy funds after distribution

Mutual fund prices normally take a big drop after a dividend and capital-gains distributions because many investors will buy a fund anticipating the near-term reward.

Just after the dividend is paid, the shares drop in price because buyers will have to wait until next time - usually one month or three months - to get another distribution.

If you’re planning to buy a fund, though, it usually makes sense to wait until after a distribution, assuming the distribution is coming very soon. If you don’t, you’re essentially paying yourself the distribution (through the higher price you’ll pay), and then you owe taxes on it.