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Fidelity Places Big Bet On Unproven Channel

Fund Giant Looking to Banks


Fidelity Investments aims to double its assets under administration in the next five years, and stepped-up sales through banks will be a major contributor, company executives said.

Leading the bank sales initiative is Michael K. Clark, president of Fidelity Institutional Products Group, which offers investment products and clearing services to banks, broker/dealers, insurers, registered investment advisors and other financial intermediaries.

He said that Fidelity plans to add products and services to deepen its penetration with banks and is hiring former banking executives despite broader cuts at the company.

"Our goal is to be the guy that shuts the lights off in this market," Clark said. "We want to be the biggest, most rounded player."

But some analysts are skeptical about the initiative, saying the Boston company has never actively pursued distribution through banks and will have a hard time shifting strategies during the current industry shakeout.

"Fidelity has some problems ahead," said Rus Prince, president of the wealth management advisory firm Prince & Associates in Shelton, Conn. "The bank channel just isn't as productive as it once was. Banks are failing and facing problems with questionable loan books. Wealth management just isn't the focus for banks right now."

Like most companies, Fidelity is looking for additional revenue sources and is turning to cross-selling, but that "rarely works," Prince said.

"It just doesn't happen as easily as people like to think it does," he said. "You need tactics to make this happen, and that is where everyone falls short."

Though they steered clear of disclosing specific growth targets, Clark and other executives insist that they are doing all the right things: balancing product development with cost control as well as hiring banking veterans.

Fidelity has increased spending 12% on technology, research and development and promotions from a year earlier, and "we won't lower it" this year, Clark said.

"We are coming out of a down market where a lot of people are backing off and not investing," he said. "We have been fairly aggressive."

Citing the slowdown in the investment market, Fidelity cut 3,000 jobs between November and February. Still, it has hired executives from Wachovia Corp., Charles Schwab Corp., Pershing and Merrill Lynch & Co. over the past 12 months.

Sanjiv Mirchandani, the president of Fidelity's clearing unit, National Financial, said that, in addition to "some" staff reductions, his unit has cut expenses in the past 12 months.

"We looked for overhead and administrative cuts and stayed away from impacting anything having to do with client services," Mirchandani said.

National Financial, which had $506 billion of assets under administration as of May 31, has continued to invest in the business and plans to introduce a self-clearing outsourcing platform for banks and other financial intermediaries in September. The unit is also preparing to roll out its enhanced managed account solutions platform.

"Some banks really lack the tool set to compete with the large wirehouses of the world," Mirchandani said. "We want to deliver a strong platform so they can have the capabilities to compete with the wirehouses."

Analysts said that Fidelity has never made much of an effort to develop its bank distribution before now.

"It has been a channel that has been really difficult for them to crack," said Burton Greenwald, president of BJ Greenwald Associates in Philadelphia. "It is logical and reasonable that if they put a focus on bank distribution they could build it up, but it will be an uphill battle."

Greenwald said that smaller wealth management companies, like Raymond James Financial Inc., "that have focused on the bank channel in an aggressive manner" have become the choice for most banks.

Through May, 42% of Fidelity"s $2.8 trillion of assets under administration and 30% of its $1.3 trillion under management were from the bank channel. Greenwald said that up to 75% of a small brokerage company's business could be generated through the bank channel.

"There is certainly room to grow, but it will be difficult to gain traction in just five years," he said.

Clark, who worked for JPMorgan Chase & Co. before joining Fidelity two years ago, said he recognizes that there is "significant headwind" for Fidelity and the rest of the investment management industry, but he is certain that by going after the bank channel, Fidelity can add assets.

"Five years ago, every bank wanted to build out and develop scale in wealth management, but things have changed," he said. "We feel good that our products can get to their clients because they have become investment supermarkets. It is interesting because this is not the time to be starting a wealth management firm, but banks are in a position to be a wealth adviser."