The Mutual-Fund King, Fidelity, Is Also Trail Mix Of the Financial World

Fidelity Investments of Boston is well known as the largest mutual fund company in the United States, with about $450 billion in managed assets at the end of June - more than 13 percent of all US mutual-fund assets.

What isn't so well known is everything else this privately held conglomerate does.

Outside the financial-services industry, the company operates a telecommunications firm that is building networks in London and Frankfurt, a chain selling paintings and prints called Wentworth Gallery, BostonCoach limousine service, the J. Robert Scott executive-search firm, a hotel that is being built near Boston's World Trade Center (which Fidelity owns), a software company, the personal-finance magazine "worth," and a media company with 117 daily and weekly newspapers.

"It's not just that people outside the firm don't understand all that we do," says Roger Servison, head of public communications for Fidelity. "Many inside the firm" haven't pieced together the whole pattern.

About 40 percent of the profits of FMR Corp. (Fidelity's parent firm) comes from outside mutual-fund sales and management. The majority of the earnings in this "other Fidelity" comes from large retail and wholesale brokerage businesses.

Trades by Fidelity brokerage services - a separate business that puts through transactions for Fidelity mutual funds and other clients - account for 5 to 8 percent of all daily trades on the New York Stock Exchange.

FMR lists 43 different companies in its 1995 annual report. Many, however, are gathered in related groups, including pension and investment management.

Led by its core mutual-fund business the firm has grown from 7,250 workers at the start of 1990 to nearly 20,000 today.

"Fidelity is a success because it knows what the public wants and does it," says Ralph Acampora, top technical analyst for Prudential Securities Inc. of New York. "Fidelity is the best example of where the securities and financial-services industries are going today." His point: Sales of securities are gradually moving away from broker/dealer sales and toward mutual funds. Also, more and more individuals are selecting securities without the advice of brokers, using discount brokerage services, one of Fidelity's specialties.

Fidelity is the second-largest discount brokerage firm in the US, after Charles Schwab & Co. of San Francisco. "Such growth by one firm into many areas of financial services is not unusual because their services complement each other," says Kenneth Berman, assistant director of the investment-management division of the US Securities and Exchange Commission.

Richard Kopcke, an economist with the Federal Reserve Bank of Boston, agrees, adding: "It's not easy these days to define even what a bank is."

Two groups inside Fidelity spend full time looking for new business opportunities, says Mr. Servison, who has been guiding both groups. One looks for new areas in financial services, the other for other opportunities. "We use consultants sometimes," he says. "But we get our best ideas for business expansion from our customers and our own employees."

One Fidelity company provides software, asset-management consulting, and brokerage services to the rapidly growing financial adviser industry.

Fidelity has also become the No. 1 provider of 401(k) retirement plans, which serve large and small businesses. It's the third-largest provider of 403(b) retirement plans, for nonprofit institutions.

Other financial operations include a bank credit-card business, which is introducing an electronic bill-paying service this year; a large foreign-exchange business; a life-insurance division that sells annuities; a company that provides both investment management and back-office services to bank trust operations and to corporate or union defined-benefit pension plans.

Fidelity also handles the employee benefits record-keeping for many large corporations, providing information to employees of these firms by telephone.

This "benefits outsourcing" service is based on years of developing computer and telephone skills for its own mutual-fund business. "Our approach has been to take developed skills and leverage them to other areas that offer businesses lower-cost services than they are getting elsewhere," Servison says.

Fidelity brought its own shareholder servicing in-house in 1969 with the idea that no outside firm would provide the highest-quality service. This move helped cultivate a corporate culture of service that has translated into a lot of growth. The firm spends hundreds of millions of dollars each year on communications technology - "probably more than a publicly held business could manage," Servison comments.

The company has grown 100-fold since Edward "Ned" Johnson III took over. FMR's president, whose investment prowess as a portfolio manager exceeded even that of Fidelity's renowned Peter Lynch, has built the company on his own business philosophy. Mr. Johnson's father, an attorney and specialist in corporate finance, founded the company in 1946.

Johnson became president of FMR in 1972, when assets under management totaled $4.3 billion and the stock market was stalled - a condition that more or less continued the rest of the decade. It was during this period, when it was nearly impossible to sell stock funds, that he honed a philosophy based on survival skills and business service that laid the groundwork for spectacular growth when a bull market finally returned to Wall Street in the 1980s.

Fidelity wants to reach a 50-50 balance in profits between mutual funds and its other businesses, says Servison, to protect the company against periodic swings in the stock market and other changes.

The mutual-fund market in the US is already slowing down, he says. It has grown 27 percent a year for the last 10 years, he says, and he now expects a growth rate of between 10 and 15 percent.

You've read  of  free articles. Subscribe to continue.
QR Code to The Mutual-Fund King, Fidelity, Is Also Trail Mix Of the Financial World
Read this article in
QR Code to Subscription page
Start your subscription today