Tax-aware long/short: Fidelity to selectively and substantially increase financing costs
Adviser: "I kinda get it"
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The Tax-Aware Long/Short Practitioner Group will meet on Day two (May 29, 2026).
Speaking of the Tax-Aware Long/Short Practitioner Group…
The first task I would like to work on as a group is to establish best practices for transferring a full long/short SMA from one custodian to another.
Considerations:
Full ACAT transfer without closing any position is apparently possible
Sending and receiving custodian specifics
Financing:
Rates depend on custodian/broker
Who negotiates rates depends on custodian/broker
Rates might also depend on leverage
Cost basis:
What should advisers know before they go?
Is it accurate and available in a timely manner?
Account balance: Does this matter?
How long does the process take end-to-end?
How long will the account be unable to trade while in transition?
What else would you like to know?
Share anything/everything, and I’ll aggregate into best practices and benchmarks (especially financing rates).
Everything is off the record.
Reply to this email.
Early yesterday, adviser friends began pinging me on Twitter, saying Fidelity would substantially increase financing costs for some long/short SMAs.
If you’re new to tax-aware long/short (e.g., 130/30, 250/150, etc.), apologies in advance, this post is 1,000 miles down a rabbit hole, but here’s a refresher for anyone getting up to speed.
Every platform is different, but “financing” is the margin rate (call it 6%) less the short rebate, the rate earned on cash proceeds from short sales (call it 5%) for a “through the middle” cost of 1%, “per turn of leverage.” (hypothetical)
For example, a 130/30 strategy at 1% through the middle has actual financing costs of 30% * 1% = 30 basis points.
There may be brokerage or transaction costs, and there are also borrow fees for individual names, but set those aside for now.
Yesterday, Fidelity informed some advisers that their financing costs would increase to 152 basis points or higher, according to several advisers I spoke with off the record.
So, for a 130/30 strategy, 30 bps financing might become 45.6 bps.
An adviser suggested that at least one long/short manager might lower their fees to help offset higher financing costs.
Another adviser simply called Fidelity’s announced increase, taking effect May 1, 2026, a “rug pull,” but a more nuanced picture of the situation emerged through a dozen or so conversations yesterday.
