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Fidelity Forms Separate Institutional Divisions

PALM BEACH, Fla. - Fidelity Investments has made its investment advisory, brokerage clearing services and capital markets units stand-alone businesses

Speaking at Fidelity's fifth annual executive forum here Monday, Ellyn McColgan, president of Fidelity Brokerage Services, said the company has separated out the three units to raise its institutional brokerage profile and to attract more financial institution customers.

Not Just Retail

"We are in the brokerage business, and that means retail and institutional. We want to emphasize that we are not just a retail brokerage," McColgan said, adding, "We want to grow these businesses quickly."

Each unit will maintain its own budget and staff and will be run by a president. Jay Lanigan will head up Fidelity Registered Investment Advisors. Norman R. Malo will head up National Financial. And Craig Messinger becomes chief of Fidelity Capital Markets.

The rearrangement runs counter to the national convergence trend. For months, analysts and executives have said that financial services companies cannot be successful if they are organized vertically.

Difficult Cross Sell'

Ann C. Mahrdt, a principal at the Chicago analytical firm Spectrem Group, said in a report that to be effective, firms have to combine their investment and insurance operations. She also said that extracting units to target specific markets can cause problems.

"Initially, some financial institutions will spin off strong businesses to give them more accountability, but this can make it much more difficult to cross-sell," Mahrdt said in an interview last Monday.

Some stand-alone businesses, such as Fidelity's brokerage clearing, are effective because they offer specific operational or technological capabilities, she said. Those units are usually not interested in cross-selling, she said.

McColgan said she is confident Fidelity's new approach will create cross-selling opportunities. It can offer other products, such as individual retirement account rollovers, mutual funds, and fixed-income products, to banks using its brokerage clearing services, she said.

"We don't want to push Fidelity products at our customers, but we want them to know" the products are available, McColgan said. "We want them to be able to use our products to complement what they have available to their customers.

"There are certain areas of natural overlap between these institutional brokerage units, but I think we can manage that," she said. "I don't think we are jeopardizing ourselves with any of our existing customers."

National Financial, which managed $231.1 billion of clearing assets as of Feb. 28, could expand its business through the banking channel, McColgan said.

"Banks are realizing that offering the right brokerage platform can be big and expensive," she said. "It is hard to keep up, especially for the mid-level institution."

More Banks Get Into Clearing

Malo said that some banking companies, including Wachovia Corp. and Bank of New York, have ramped up their clearing services internally, but that others are outsourcing.

National Financial has a 44% share of the bank brokerage clearing services market, he said. And even though assets under management fell 6.7% last year, to $233.36 billion, it signed up 16 new clients, the second-most ever.

"Banks don't see us as a threat," Malo said. "Banks need clearing services, and they need to partner with someone. Why would a bank want to clear with another bank? The industry is consolidating, and the choices are limited."

McColgan said that many banks are returning to core strengths and that it is essential for Fidelity to capitalize on the trend. "I think now there is an opportunity to grow these businesses dramatically, and we don't want to miss out on that."

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