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Outsourcing Responsible For 1/3 of Fido's Revenue

The world's top mutual fund company has found that tabbing stocks is not the only way to make big money.

For Fidelity Investments, outsourcing has grown so much that it is generating a third of the company's revenues, and the firm does not plan on stopping there.

The company announced last Wednesday it has added 1,175 new clients and 2.6 million new employees to its benefits outsourcing and human resources services departments alone over the past year, bringing its total to 16.6 million employees receiving administrative help with such outsourcing services as benefits, human resources and payroll.

Fidelity Employer Services President Peter Smail said that five years from now, the outsourcing could make up half of Fidelity's revenue.

"Companies continue to make strategic decisions to consolidate benefits administration, and now, more and more are outsourcing a full range of HR services such as workforce training and development, performance management and staffing," Smail said.

These thoughts echo similar sentiments that Fidelity Vice Chairman Robert L. Reynolds shared with MME back in May (see "Fidelity Takes New Diversification Tack," MME 5/19/03).

By taking on services that companies simply do not want to pay for, and by becoming more involved in a part of the business that does not rely on the fluctuations of the stock market, Fidelity seems to be headed toward Smail's five-year prediction.

-- Joseph Checkler

Morningstar Removes

Alliance's Scarlet Letter

Alliance Capital reached a settlement with New York State Attorney General Eliot Spitzer and the SEC in December, but a little less than two months later, Morningstar is pulling its "consider selling" label from the fund group.

Chicago-based Morningstar caused a stir when it initially told investors to consider selling funds from groups involved in the scandal. Alliance was one of the firms it denounced. Alliance's deal with regulators included a reduction in fees and restitution to shareholders, bringing the total cost of the settlement to an estimated $600 million when all is said and done.

"We think AllianceBernstein has risen to that standard, although our decision to remove the company's funds from our consider selling' list should by no means be construed as an endorsement of those offerings," Morningstar wrote in a statement.

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