Fidelity's Restructuring Puts Jonas in Catbird Seat
November 4, 2002
Fidelity Investments of Boston has undergone a restructuring that will affect at least four top-level executives, including the firm's vice chairman, as well as roughly a dozen departments. Although the Boston behemoth is characteristically tight lipped about the reasons for the changes, observers, meanwhile, say Fidelity may be trying to focus on more lucrative business units in an effort to boost revenues.
Fidelity, which runs America's largest fund complex, issued an internal memo, late last month saying that it had reshuffled top executives between departments and altered their job descriptions, said Vin Laporchio, a Fidelity spokesman.
Most significantly, the firm handed some of the responsibilities of COO and Vice Chairman Bob Reynolds over to Steve Jonas, Fidelity's former CFO, who has been appointed to the post of chief administrative officer, a newly created position. Jonas will now oversee the company's legal, government affairs, finance, human resources, corporate affairs, operations and corporate services departments, all of which had been managed by Reynolds.
In addition, Laura Cronin, formerly the CFO of Fidelity Brokerage, will replace Jonas as CFO of Fidelity Investments. Her replacement at the brokerage unit has not yet been announced. Meanwhile, Joe LoRusso, formerly president of the firm's Retirement Services Co., will now oversee Fidelity Financial Intermediary Services.
Laporchio said the changes are a result of "the expanding complexity of Fidelity's business."
"Obviously, just in terms of the way that businesses and the competitive landscape change, there are always new challenges," he said. "This is the best way to organize our company at this particular time." He declined to elaborate, or to give specific examples.
Roy Weitz, publisher of FundAlarm.com, an online journal about mutual funds, who has tracked Fidelity in recent years, said he wasn't surprised by Fidelity's cryptic language. "It's kind of like the old Soviet Union," he said. "If they don't tell you, you have to engage in these Who's in? Who's out?' games."
Jack Bowers, who edits Fidelity Monitor, an independent newsletter about Fidelity funds, thought the restructuring was nothing extraordinary, especially considering the firm, like all others, has suffered the ravaging of a bear market.
"It's nothing unusual to do some soul searching when your sales and profits are down," Bowers said.
In addition, Bowers said that Fidelity, like other complexes, regards the U.S. mutual fund industry as saturated and is focusing its attention on other units in an effort to boost profits. The restructuring, especially the changes in Fidelity Brokerage, simply signal Fidelity's efforts to sustain and eventually build those businesses, he said.
Like other firms, Fidelity, which manages about 300 funds, including the well-known, giant Magellan stock fund, has suffered repeated hits to its assets under management in recent years. Its total assets under management have declined from more than $1 trillion in 2000 to $776 billion this year, according to Fidelity. The firm oversaw $674 billion in mutual fund assets alone as of Sept. 30.
"The mutual fund business is Fidelity's dominant source of profits at this time," Bowers said. "Fidelity is trying to branch out and look for other ways to achieve growth."
In fact, Fidelity is said to be focusing its attention on managing employee benefits, hoping that the business could prove a more stable source of revenues than mutual funds.
Weitz suggested that the changes may cast a pall over Reynold's future at the firm. "Reynolds is not taking over," he said. "This is not something you do to somebody who is the heir apparent. He's not the future of Fidelity."
In addition, Weitz noted that Jonas will report to Edward Johnson, Fidelity's CEO and chairman of the board, not to Reynolds. "I don't know how you can be a vice chairman of a company and have a person below you report above you," he said. "That seems very strange to me."
Weitz said Fidelity may be dissatisfied with the way Reynolds handled the prospect of layoffs at the firm late last summer. Rumors had been circulating that Fidelity would cut staff, and Reynolds confirmed those rumors with a memo that some may have regarded as unnecessarily cold, according to Weitz. Fidelity announced that it would lay off 1,695 workers, more than 5% of its workforce, in October [see MFMN 10/7/02].
"It's possible that they just weren't happy with the way he handled that," Weitz said. "The timing is a little bit suspicious."
Fidelity's Laporchio said that isn't the case. "That's ridiculous," he said.
Still, the Fidelity spokesman confirmed that Reynolds issued a memo Aug. 15 discussing the possibility of cost-cutting measures, including layoffs. "The employees I spoke with appreciated the information," he said.
Reynolds, meanwhile, will continue to oversee Fidelity's business units, including Fidelity Management & Research, Fidelity Brokerage, Fidelity Employer Services Co., Fidelity Financial Intermediary Services and Fidelity Strategic Initiatives. In addition, Fidelity's Investment Life Insurance Co., which was formerly overseen by Rod Rhoda, will now fall under Reynold's purview.
The last time that executive changes at Fidelity had a significant effect on its fund business was in 1996, when the firm put administrators in place to crack down on variations within the firm's portfolio management tactics, Bowers said. Until that time, managers had enjoyed a good deal of leeway in their management, he said.