Fidelity Conflicts of Interest Policy
Conflicts of interest exist in all businesses and at all firms. Nevertheless, at FIL we recognise that our business is, above all, based on a contract of trust with our clients and we have a duty to manage those conflicts and treat all our customers fairly.
Fidelity and its subsidiaries have a regulatory and fiduciary duty to never put itself in a position where its own interest result in an irreconcilable conflict with its duty to its clients or where it has one duty to one client results in an irreconcilable conflict with its duty to another client or clients. To that end, Fidelity will ideally avoid conflicts of interest. However, where this is not possible, and recognising that potential conflicts of interest will arise from time to time, Fidelity will take all reasonable steps to identify, record, manage and where required, disclose actual or potential conflicts of interests and have in place a policy relating to conflicts of interest.
Governance and Monitoring
The Fidelity Board has approved the Fidelity Conflicts of Interest Policy (“the Policy”), which sets out the global minimum standards to mitigate material risk of damage or harm to the interests of a client arising from competing obligations or motivations of Fidelity or its clients. In order to prevent such a risk, conflicts are identified through various means, including regular interviews with the business heads, awareness training and internal reviews.
A Conflicts Register is maintained to ensure that significant conflicts have been identified, managed and recorded and the relevant mitigating controls, where appropriate, are documented. The Policy and Register are reviewed at least annually, or more frequently if necessary, to ensure they remain fit for purpose and compliant with all applicable laws and regulations. They are audited by Internal Audit on a periodic basis and submitted for review to external auditors on an annual basis.
Fidelity has established a Global Conflicts Committee (“Committee”) that actively identifies and manages emerging and existing conflicts across the business lines, and ensures consistent standards are applied to conflict management across Fidelity. The Committee meets regularly, at least three times a year to review any issues involving material conflicts occurring across Fidelity’s business and assists with the Policy’s implementation, ongoing monitoring and oversight. Day-to-day effective implementation rests with senior management in their respective business areas and the Committee is assisted by the Audit & Risk Committees, Internal Audit and other Oversight groups as necessary.
Related Policies and procedures
Fidelity has an internal Code of Conduct and associated policies (together “the Code”) including:
- Personal Conflicts, Trading and Price Sensitive Information Policy, covering:
- Outside activities and directorships
- Reporting violations and suspicions
- Safeguarding of price sensitive information and notification of Legal/Compliance
- Additional personal trading requirements and prohibitions for those individuals that are Investment Professionals or others who have access to sensitive fund information.
- Gifts and Entertainment Policy
- Reporting any gift received and potentially returning/surrendering/declining if inappropriate or excessive
- Obtaining approval from Code of Conduct and Ethics office and/or management for giving gifts or providing entertainment
- Prohibitions on soliciting gifts or entertainment
All employees must adhere to the Conflicts of Interest Policy and the Code and receive awareness and training to reinforce that clients’ interests must always come before those of Fidelity or its employees. The Code is monitored and includes a full sanction and disciplinary process in the event of a violation.
Potential Conflicts of Interest
Potential Conflicts of interest include but are not limited to, the following key areas:
Code of Conduct
1. Personal Trading
Fidelity employees are subject to a Code of Conduct which places restrictions on all staff, in particular those with access to confidential information about the funds. At the heart of the Code is the principle that no employee may benefit from their knowledge of a client’s affairs. In particular, which may include investment in securities we manage or have awareness of as part of portfolio management responsibilities. These restrictions include account disclosure and gaining preclearance for many personal transactions for staff and their immediate family as well as duplicate reporting.
2. Gifts and Entertainment
Fidelity employees may not give or receive gifts and entertainment from and to external parties which would potentially influence their actions and choices leading to have a potential negative impact on the quality of service & products provided to clients. As such there are restrictions governing both the receipt and provision of business gifts and hospitality.
3. Outside Activities
Fidelity employees that have outside activities that conflict, or that may be deemed to conflict, with an employee’s responsibilities at Fidelity will also be governed by the Code. Fidelity employees may hold positions and outside offices such as directorships, trustee/advisory roles or act in oversight capacities for other companies or charities. These positions may cause a conflict when always acting in Fidelity client’s best interests. The Code is monitored and includes a full sanction and disciplinary process in the event of a violation or failure to disclose.
The majority of our investing is on behalf of our clients; however, FIL also invests as principle. Potential conflicts can occur during acquisition and disposal of securities, voting and the use of research. To manage these potential conflicts, decisions regarding Fidelity’s own investment portfolio are made independently and separate from the investment management process which supports our clients’ funds and accounts. Policies and information barriers are in place to ensure that these principles are properly followed. It is also possible that a Fidelity fund or account will own securities issued by a client, but in all situations Fidelity’s investment decisions will be guided by what we regard as the best interests of the relevant fund or account.
5. Trade Allocation and Best Execution
When performing client transactions in securities, Fidelity will combine orders where this is in the best interests of the clients as a whole. If there is insuﬃcient liquidity resulting in a partial completion of the order, then the securities will be allocated across all clients participating in the block trade. To manage a potential conflict of unequal allocation from a trade, Fidelity maintains a Trading Desk Policy which ensures the consistent and fair application of allocations. Allocations are performed on a pro-rata basis based on the size of the order, and the automated system allocation algorithm is applied for every trade, subject to three lines of oversight – the Trading Desk supervisor, Compliance and Internal Audit/Risk.
In instances where multiple funds hold an investment involved in a voting event we will always act in the interests of the specific fund in question and, in instances where there is a conflict with Fidelity’s own interests, we will either vote in accordance with the recommendation of our principal third party research provider or, if no recommendation is available, we will abstain or not vote at all. We will not vote at shareholder meetings of any Fidelity funds unless specially instructed by a client. Fidelity has a procedure for escalating voting decisions when conflicts or controversial issues are identified during the voting process and a Sustainable Investing Operating Committee in place acting as final arbiter.
7. Research Material
Fidelity develops proprietary research material for its own use which is not made available to the public. Nevertheless, we place certain controls around our research process. If any research analyst has a personal interest in a stock on which he or she is commenting, that must be disclosed within the research note. In addition, the Fidelity Code of Conduct contains specific provisions requiring research analysts to manage any possible conflicts. Research is issued simultaneously across Fidelity for the benefit of all client funds.
8. Management of Multiple Accounts
Fidelity manages the accounts of multiple clients on various terms and conditions, including different fee arrangements and investment mandates (including investment mandates involving the use of derivatives and short selling). Fidelity will not favour the account of one client over the account of another client to further its own interests or the interests of one client over the interests of another.
Distribution and sales
9. Capacity Management
In exceptional instances there can be capacity constraints for particular funds or investment strategies which can give rise to potential conflicts between clients. Fidelity adheres to a capacity management framework, which is forward looking and actively reviews capacity factors on an on-going basis. Should a potential conflict arise all existing clients would be treated fairly and given preference over new clients regardless of fees.
10. Product Bias
There is a potential conflict which could result from commercial pressure to give preference or priority to Fidelity products over 3rd party products, whether funds, ETFs or investment trusts, for inclusion on Fidelity’s fund platforms or best buy lists. Within Fidelity there is a robust framework in place that ensures that the same standards and criteria are applied to both Fidelity products and 3rd party products when they are considered for inclusion (or remaining) on the platform or on the best buy lists.
11. Sales targets
Fidelity operates a variety of remuneration models for its employees. All models are agreed with HR and the Remuneration Committee to ensure independence and consistent criteria. The sales teams have sales targets which are provider neutral/agnostic, i.e. there are no explicit or specific Fidelity fund sales targets.
12. Different services and different business channels
Fidelity as a global company offers many different business services to clients across different channels. We treat all clients fairly although, this may not always be the same treatment and where different outcomes can be achieved, we ensure the conflicts are disclosed clearly. This potential conflict is managed by separate terms and conditions, and on the basis of different client propositions, which are made clear to clients and their advisers in all marketing material.