Skip navigation

Wanting What Schwab’s Got

Fidelity has put together a team of all stars and invested heavily in technology to challenge the No. 1 in the RIA support business: Schwab.

Fidelity, the king of 401(k)s and mutual funds has revealed its latest desire: It wants more — much more — love from financial advisors.

The former bastion of do-it-yourself investing has been building out its RIA custody business and trying to catch up to Schwab Institutional, the No. 1, for years. But it's still a distant second: Schwab has $542 billion of assets in custody from RIAs; Fidelity has fewer than $330 billion, an amount inflated by assets from trust companies and third-party administrators.

But now, it's clear that Fido really means business. In the past year, Fidelity Institutional Wealth Services has gone on a poaching spree, recruiting a series of executives from the RIA and brokerage worlds, including Schwab Institutional's former No. 1, Charles Goldman. Fidelity has also spent about $50 million to upgrade its technology for advisors in the past 18 months. In mid-December, that maneuvering culminated with the launch of WealthCentral, a web-based wealth management platform for RIAs. About 25 Fidelity RIAs are now using the platform, which the company says unifies portfolio management, customer relationship management (CRM), financial planning, portfolio rebalancing and trading into one workstation. The plug-and-play platform is scheduled to roll out to Fidelity's remaining 3,500 RIA clients throughout 2009 and 2010.

“What we want to do here is be at the front” of the RIA-platform business, says Michael Clark, president of Fidelity's Institutional Products Group. “We don't want clients to tell us: This has to get done. We don't like baling wire and duct tape — we want industrial strength.”

Fidelity has always been vulnerable to claims that it is essentially a replica of Schwab with a little bit less polish. Now it can make at least three claims that put it one step ahead: It has integrated some big-name technology from Siebel, Advent and other providers into a single package with WealthCentral; it has married its RIA unit with its broker/dealer clearing business, National Financial, creating a pitch for hybrid advisors; and — most astoundingly — it has decapitated Schwab Institutional by poaching its top gun, Charles Goldman. It also armed Goldman with a sub-lieutenant in Michael Durbin, an extra layer of management he didn't enjoy at Schwab.


The personnel moves to bolster the advisor servicing business are the result of discussions between Clark, Fidelity's Chairman and CEO, Edward “Ned” Johnson and its President, Rodger Lawson, according to Clark.

Lawson brought Clark on board last January from JPMorgan, where he oversaw $15 trillion in assets. Clark, in turn, hired Ron Fiske Jr. from Pershing this fall to oversee products for Fidelity's dually registered advisors. In November, Clark hired Durbin from Morgan Stanley to replace Jack Callahan as president of Fidelity Institutional Wealth Services.

In short, Fidelity seems to have put together its own “murderers' row” (think 1927 Yankees) to tackle the business of serving advisors. The moves came as something of a surprise to many. “I think most of us thought they were done after they hired Durbin” on November 18, says Chip Roame, principal of Tiburon Strategic Advisors. But then Fidelity plucked Goldman away from Schwab on November 25 and got the whole industry buzzing — clients included. “I'm very surprised that Schwab would open this up,” says says Roger C. Hewins III, president of Hewins Financial Advisors, a Schwab custody client that manages $2 billion of assets. “I wouldn't want to see Goldman go to a capable, well-financed competitor if I were Schwab.”

There can be little doubt that Fidelity spent heavily on executive salaries to reel in Goldman, Clark and Durbin, says Tony Riotto, recruiter of wealth management executives for Riotto Jones LLC of New York. The rule of thumb is an 18 percent salary increase, plus a bigger raise in bonus incentives, he says.

Turnover at Fidelity's RIA custody unit has been heavy since Jay Lanigan, who held the tob job for 11 years, departed in January of 2005. William Carey held the spot until October of 2006, and Jack Callahan held the job until Durbin replaced him in November. Each subsequent leader tried to improve service to financial advisors, but Schwab continues to dominate in this crucial category, according to many industry observers and advisors.

“Fidelity's service isn't bad,” Cordes says. “Schwab just seems to have cracked the code there.” But Goldman is very familiar with this code, says Steve Winks, principal of in Richmond, Va. “He didn't invent [the approach to RIAs]. He inherited it, but he knows it's special.”

The consensus of Schwab advisers, according to Hewins, is that they would “take a phone call” from Goldman, a courtesy they might not have accorded his Fidelity predecessors.


In taking the Fidelity job, Goldman may look to his old skills as a management consultant with The Boston Consulting Group as much as the ones he learned at Schwab. In his newly created position, Fidelity is asking him to oversee both its custody unit and its clearing business, National Financial. He is charged with making them more of a single entity, which will serve fee-only advisors as well as commisson-based advisors who dabble in fee business.

Clearly, Clark, whose legacy at JPMorgan includes making more than 20 acquisitions on its behalf, believes that Fidelity can benefit by serving a broad spectrum of advisors. “A lot of [brokers] are opting for the [single] channel model,” Clark says. “One thing about Fidelity is that we want to serve the entire [financial] intermediary space” of brokers and financial advisors.

This dual focus is decidedly un-Schwab-like, says Bernie Clark, senior vice president of sales for Schwab Institutional. “We focus predominantly on fee advisors,” he says. “If [your business mix consists of] 40 percent fee and 60 percent commissions and you're looking to grow your commission business, we're probably not the right place for you. [The fee-only model] is the market we want to be part of. We believe there can be serious conflicts in the commission-based business.”

And that's just it: Most companies serving independent advisors are either serving mostly RIAs — like Schwab — or they're serving mostly independent contractor registered reps, like, say, LPL or Raymond James. These distinctions have certainly begun to blur. But Fidelity wants to really cover the waterfront with hybrid advisors, pulling in guys who fit all commission and fee-based types.

Granted, Fidelity does have a rival here in Pershing. Pershing has done a very good job at winning RIA assets from reps who use independent broker/dealers, according to Ron Cordes, co-chairman of Genworth Financial Wealth Management in Pleasant Hill, Calif., which manages $15 billion of advisor assets. “Fidelity is competing with Pershing at the broker/dealer level and Pershing is ahead of them there,” he says.

Pershing has the advantage with indie b/ds beccause it already serves so many of their firms on the clearing end. And the independent broker/dealer market “is the hotbed for advisers mature in their business” — and expanding into RIA territory — says James Crowley, managing director of Pershing. Pershing has $780 billion of clearing assets from brokers (and just $70 billion in custody from RIAs); Fidelity's National Financial has $601 billion of clearing assets.

In fact, National Financial is so central to Fidelity's stated strategy that some of its recent hires may be motivated by a desire to make inroads into Pershing's independent b/d business, as opposed to Schwab's RIA empire, he says. “Mark Tibergien's hiring [by Pershing in 2007] may have raised the stakes” for Fidelity and made them look for ways to compete, he says. Tibergien is now head of Pershing Advisor Solutions after leading the esteemed advisory consulting practice for Moss Adams of Seattle.

Indeed, Fidelity hired Pershing's Fiske this fall to compete better for assets of dually registered advisers, says Scott Dell'Orfano, executive vice president of sales at Fidelity. Fidelity executives also have a competitive trump card: gigantic financial resources and the willingness to spend for the long term.

“Fidelity always thought they had more capital to deploy and they were willing to deploy it because they were privately held,” says Burton Greenwald, a financial services analyst in Philadelphia.

That said, the strength of Fidelity's balance sheet may be open to some questions. It had Moody's worried enough last January, that the ratings agency downgraded Fidelity's debt from Aa3 to A1. Moody's was particularly concerned to learn that the firm's total debt had spiraled up to $8.4 billion. (Fidelity says it won't let Moody's or a recession deter it from making big bets to reach lofty goals “particularly in something like the advisor business,” concludes Dell'Orfano.)


Fidelity's moves, however big and bold, are not without perils, according to Timothy Welsh, president of Nexus Strategy of Larkspur, Calif. “The downside for them is that if in 18 months their service is no good then their credibility is gone,” because there will be nothing more to promise, he says. In that case, “This [blitz of changes] will come back to bite them.”

Fidelity will also need to sell advisors on its technology so that they implement it. That's no easy feat. On the other hand, with WealthCentral, it chose to use three “best of breed” providers: Advent Software for portfolio accounting, Siebel for customer relationship management and EISI for financial planning. Fidelity expects to have 1,000 of its 3,500 RIAs using WealthCentral by the end of 2009, says Edward O'Brien, senior vice president of Fidelity.

“We're already seeing the efficiencies coming to a head,” says Brian Johnson, who has begun using the new platform. “I have a heck of a lot more time on my hands.” Johnson is vice president of Anchor Bay Capital in Carlsbad, Calif., which manages $100 million.

The big time savings comes from the integration of the different technologies and platforms, which vastly simplifies data entry: it can be done once instead of multiple times for each client, each account and each application, Johnson says. Fidelity charges advisors a minimum of about $8,200 annually to use WealthCentral with all applications. The key cost variable is the number of accounts being managed by Advent. Each extra account costs $45 to $75 per year, with a lower price for advisors with a larger number of users.

The technology is so efficient that it is allowing Streettalk Advisors of Houston to maintain a rock bottom minimum account size of $50,000, and to handle five new prospects daily, according to Streettalk Principal, Mike Smith. Another advisor who was part of Fidelity's pilot program, however, says that he had a rougher time trying to use WealthCentral. “The integration issues are exacerbated” by WealthCentral's strategy of keeping to one provider for each software application, says Scott Barbee, wealth advisor for TruePoint Capital, which manages $550 million from Blue Ash, Ohio. But Mr. Barbee applauded the core of WealthCentral as “more organized and intuitive.”

WealthCentral's day of reckoning may still come, says Dan Skiles, vice president of advisor technology solutions for Schwab Institutional. “Is there a belief that there should be one central management software?” he asks. “One thousand appointments a year with advisors tell me it's an emphatic ‘no.’” There's also a group of advisors who are accustomed to plug-and-play technology — breakaway brokers from wirehouses — that Fidelity has in its sights. Fidelity has lured 59 of them with $9 billion of new assets in 2008, a doubling of last year's total.

“I think Fidelity is going in the right direction, especially for advisors who don't have custody yet,” Barbee says. “This is a huge win for them.”


Charles Schwab leads in FAs, assets and breakaways.

RIA Unit Schwab Institutional Fidelity Institutional Wealth Services Pershing Advisor Solutions
Number of FAs 5,500 3,500 480
Assets in custody $542.1 billion $335 billion $70 billion
Breakaway FAs Q1 -Q3 2008 82 59 60
Assets from Breakaway FAs Q1 -Q3 2008 $11.4 billion $9 billion $4 billion
Source: Company Reports
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.