Referrals show Fidelity has more faith in RIAs

SAN FRANCISCO — With the specter of millionare clients’ assets slipping through its fingers in a hot rollover market, Fidelity Investments is placing its high-net-worth strategy squarely on the shoulders of registered investment advisers.
The Boston-based fund giant is referring a steady stream of top-tier clients to about 30 financial advisers in a pilot of its new Wealth Advisor Solutions program. Referral clients typically have investible assets of at least $1 million.
While it is too soon to say how many advisers will participate in the Fidelity program, rival Charles Schwab & Co. Inc., has about 130 advisers in its program, which RIA participants have turned into $34 billion of assets under management since its inception in 1996. By contrast, referrals to advisers by Fidelity have generated $6 billion since the company began making them in 2001.
Though Fidelity is the largest broker with more than $1.7 trillion in client assets, it has few answers for customers whose accounts have grown to a size and complexity where they demand higher levels of investment counsel and wealth management, advisers said.
This is a void Fidelity is increasingly desperate to fill, because its enormous 401(k) business mints millionaires as baby boomers retire and roll over assets, according to Richard Stone, chief executive of Salient Wealth Management LLC, a San Rafael, Calif.-based firm that manages $400 million.
“[Those rollover dollars] are not necessarily going to Fidelity,” he said.
And time is against the firm.
Fidelity’s sense of urgency is palpable, said Gary Adams, senior vice president of Anchor/Russell Capital Advisors LLC, a Boston firm that manages $7 billion.
“If they don’t [offer high-level counsel], somebody else is going to do it for them,” said Mr. Adams, who is one of the advisers Fidelity chose to receive referrals through its new program. “We’re playing defense for them.”
All Fidelity’s referrals flow to advisers who are customers of the registered investment adviser group, its asset custody unit. Initially, all these advisers are based in Boston, Chicago and San Francisco — where the program is being piloted.
Fidelity’s move to guide its richest investors from rudimentary branch, or web, advice toward relationships with advisers reflects the growing influence of Fidelity Brokerage Co.’s president, Ellyn McColgan, according to advisers who have worked closely with Fidelity in the pilot program.
She wasn’t made available to comment on the program.
“We get the feeling this is coming from the highest levels at Fidelity,” said Jeffrey Colin, founder and partner of Baker Street Advisors LLC in San Francisco, which manages $2.5 billion.
“This is an important initiative to Ellyn, and what Ellyn says goes,” Mr. Adams said.
But Ms. McColgan and other Fidelity brass gave the new referral program a go only after they got advisers to agree that they could monitor client satisfaction by calling directly on the clients, according to Scott Dell’Orfano, executive vice president of Fidelity’s registered investment adviser group.
“The quality of customer service is measured in retail,” he said.
Fidelity works with advisers to improve customer service in the event of negative client feedback and ultimately reserves the right to terminate the adviser from the referral program, according to Steve Austin, a company spokesman.
Many advisers see Fidelity’s monitoring process more as helpful feedback than as Big Brother intruding, they said.
“[Fidelity] will be grading us, and the clients will be grading us, and I think that’s a significant upgrade,” said Michael Nathanson, chief executive and president of the Colony Group LLC in Boston, which manages $1 billion.
Yet this program is little different from what San Francisco-based Schwab has done for several years, he added.
Indeed, advisers converted Schwab referrals into $4.7 billion of assets under management last year alone.
That is almost as much as Fidelity has garnered in the six years that its informal program has been in existence. TD Ameritrade Holding Corp. of Omaha, Neb., which revamped its program in October, has converted $2 billion in its history.
One reason Fidelity has lagged behind Schwab in terms of referrals is that it has left much of the process to chance, advisers said. It was largely up to advisers to convince Fidelity branch brokers to send them referrals.
Now, brokers involved in the pilot program are receiving training and encouragement in how to meet the needs of wealthy clients.
They don’t get paid specifically for making referrals. But the compensation formula rewards them for the satisfaction of these clients and for increased assets when advisers convince clients to consolidate at Fidelity assets that were with other broker-dealers, Mr. Austin said.
But these Fidelity brokers have a more immediate reason to unload accounts, Mr. Stone said.
“Believe me, there are [incentives] to do this,” he said. “They have such large books, and they’re looking to get help getting some of this off their shoulders.”
Meanwhile, the timing of Fidelity’s program launch is impeccable, because the referral flow at Schwab has slowed, or virtually stopped, in some areas of the country, some advisers say.
In addition, Schwab has sharply raised the rates it charges on referred assets to 0.25% from 0.15%.
But since Schwab made these changes to its referral program Jan. 1, it has seen an uptick in referrals, said Charles Goldman, chief operating officer of Schwab Institutional.
These changes suggest that Schwab’s referral program could regain its swagger, Mr. Stone agreed.
“There was so much turmoil at Schwab” over the course of the past year, he said. “Now [the compensation scheme] is clarified, and everybody’s motivated again.”