What to Do If You’ve Been Impacted by Fidelity’s 401(k) Changes

Many Americans’ largest investment account is their 401(k) plan. And some want a financial advisor to help manage that account and make trades on their behalf.

Suppose you work with a third-party advisor — that is, one who isn’t affiliated with your 401(k) custodian. How do they access your account? One simple solution is for the advisor to use your 401(k) username and password to log in.

But back in September, Fidelity, the largest 401(k) custodian by assets under management, put the kibosh on this practice. Here’s why, and what you can do if you’ve been affected by Fidelity’s restrictions on credential sharing with third-party advisors.

What’s going on with Fidelity 401(k) plans and third-party advisors?

Over the last few years, Fidelity has taken several measures to limit third-party access to customer accounts, citing cybersecurity concerns.

In September 2023, the company announced that it would prohibit online investment research tools such as stock screeners from automatically “scraping” data from Fidelity webpages^[0]

Last month, the frictions between Fidelity and independent advisors exploded onto the headlines when Pontera, a firm that helps advisors directly manage clients’ 401(k) plans, published an open letter accusing Fidelity of “locking out tens of thousands of its own customers from their accounts for choosing to work with financial advisors outside of Fidelity’s ecosystem^[0]

Fidelity has disputed the accuracy of the letter, which has drawn significant media coverage, including a New York Times article^[0]

What Fidelity says affected investors should do

Fidelity has acknowledged that its restrictions on credential sharing with third-party advisors have sometimes temporarily blocked customers from accessing their own accounts. Here’s what the 401(k) custodian said in a written statement to NerdWallet:

“We understand that resetting credentials to secure accounts may cause disruption to our customers; however, Fidelity believes these ongoing safeguarding efforts are necessary to protect customer data and personal information.

Any blocks placed on accounts will be lifted as soon as customers secure their accounts by calling Fidelity and putting new credentials in place. Moreover, the blocks affect digital access only. Customers can always access information and transact in their accounts by calling a Fidelity phone representative.

If a customer chooses to work with an advisor to manage their 401k, they can do so. But it’s important they use an advisor who securely advises on employer-sponsored retirement accounts with plan sponsor oversight. The firms that rely on participant credential sharing are doing this outside of plan sponsor oversight.”

In short, Fidelity says that investors whose account access is blocked can call the company and reset their login information to remove the block, and that they can still work with outside advisors who play by the rules.

But what are those rules, exactly?

Some advisors have defended Fidelity’s actions. Here’s their advice

Brenden Gebben, the CEO of Absolute Capital, an asset management firm that works with financial advisors, says that there are still ways for an independent advisor to access your Fidelity 401(k) plan and trade on your behalf. They just need to be a registered investment advisor who has a custodial agreement with Fidelity, and your workplace 401(k) plan’s governing document needs to allow third-party advisor access.

He also says that there are legitimate arguments against allowing “back-door” advisor access to 401(k) plans via credential sharing. For example, it makes it difficult to maintain a clean audit trail of which trades were placed by the client, and which were placed by the advisor. Fidelity may not be the last custodian to restrict the practice.

“It would not surprise me if other custodians follow suit. It would just make sense, in my estimation,” Gebben says.

It’s fairly straightforward for advisors to get “front-door” access via a custodial agreement with Fidelity, according to Gebben. Advisors just have to fill out a form and send it to Fidelity, and then clients have to consent to third-party advisor access to their 401(k) account.

Changing an employer’s 401(k) rules to allow outside advisor access can be trickier, depending on the company’s size.

“If you have a huge company, like Verizon, that might be a little tougher to navigate, because it’s such a big company. Who makes that decision? Is it by committee? Is there a plan consultant involved? But for smaller plans, we’ve seen planners work with the employer to get the plan amended, and then the ‘no’ becomes a ‘yes,’” Gebben says.

Gebben’s main piece of advice to 401(k) accountholders who have been affected by Fidelity’s recent actions is simple: Talk it out with the concerned parties.

“Talk to your planner to see if they can find a way to do front-door access… or talk to your employer. If currently it’s a ‘no,’ they don’t allow access, make it a ‘yes,’” he says.

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Others say Fidelity is creating headaches for clients. Here’s their advice

Dave Goldman, the chief business officer of Pontera, said in an email interview that the decision on how to respond to Fidelity’s restrictions rests with employers — not 401(k) accountholders.

“Retirement savers have a few options here. If you are participating in your employer’s retirement plan and they’ve selected Fidelity, speak up. Talk to your HR department or benefits manager and ask them why you’ve been forced into a plan that won’t allow you to work with a financial advisor of your own choosing,” he said.

Despite their differing views on Fidelity’s credential-sharing restrictions, Pontera’s Goldman and Absolute Capital’s Gebben agree on one thing: If you have a Fidelity 401(k) plan, and a now-locked-out advisor who you want to keep working with, it may be worth discussing the situation with the human resources team at your workplace.

Andrea Johnson Swope is the director of advisor services at Blueprint Investment Partners, a firm that provides client asset management services for independent financial advisors. She said in an email interview that Fidelity’s restrictions have created some operational hurdles for her firm.

“We can still deliver the same recommendations and oversight, but clients now have to execute trades directly in their retirement accounts instead of us doing it for them,” she said.

“In some cases, if a client prefers a fully managed experience, we’ll discuss rollovers when it’s appropriate and tax-efficient. We’re also exploring alternative technologies and custodial integrations to meet clients where they are and continue providing the strategies that help them reach their financial goals,” Swope said.

Rolling over a 401(k) into an individual retirement arrangement (IRA) isn’t a decision to be taken lightly. 401(k) plans generally have much higher annual contribution limits than IRAs, and many also offer an employer match on contributions. However, some of the IRA accounts reviewed by NerdWallet now offer a small match on contributions and rollovers, too.