Mike Durbin, president of Fidelity Institutional Wealth Services, has his work cut out for him.
He is chasing the No. 1 firm in the industry, The
Charles Schwab Corp., which has about $605 billion under custody for advisers. Fidelity has $450 billion, which includes assets of third-party retirement plan administrators.
Fidelity's custody business also gets lost amid the parent company's huge discount-brokerage business (called personal investing at
Fidelity Investments) and its sprawling mutual fund and 401(k) plan units.
But Mr. Durbin, a former Morgan Stanley executive who joined Fidelity in February 2009 to run the wealth services division, said that he knows exactly what he has to do to compete.
Q: You have a tough task going after Schwab, which is working hard to stay on top. How do you do it?
A. They're a good competitor and, as you know, the largest competitor in the space. They had a head start, but we know exactly what we have to do, which is to help our [registered investment adviser] clients grow.
Our plan involves several things, including rolling out a next-generation technology platform, WealthCentral. In fact, it's out. It's been out. It's been commercial for the last year in a marketplace with 700 users. It's obviously grabbed the attention of all of our custodial competitors.
Q: You mean Schwab, of course, which just announced the first few vendors for its Intelligent Integration effort, which eventually will integrate outside vendors.
A. Their strategy is a carbon copy of ours. We let the adviser consume each software product on its own, but we also made sure they could take the whole thing end to end. Now we're circling back and seeing where it makes sense to add additional vendors.
We've also redefined our service around dedicated teams. And we make sure that whatever Fidelity as an enterprise has that would be attractive to the RIA constituency, we get it to them. The most recent thing there is providing RIAs with access to our family office proposition.
Q: Where are RIA recruits coming from, and where are they going?
A. I can't give exact numbers, but I would say the wirehouse channel would be the greatest source of new RIAs and assets. We also see assets move from the independent-broker-dealer channel into RIA firms. Through the third quarter, of the breakaway teams that we saw, only 45% actually established their own RIA, which implies 55% went somewhere else — they joined an existing RIA or joined a [broker-dealer] or an aggregator model. I see that trend continuing. The line of scrimmage with existing RIAs who have more than one custodian is with the next new account they win — which custodian will get it? And investors themselves are leaving the full-service legacy channels and going to independent channels for advice.
Q: Fidelity runs advertisements with a green line, telling investors that your discount-broker business can show them the way to retirement. Is there a concern among your RIAs that the discount business competes with them?
A. It's not a screaming issue that I hear about every day. I think our RIA clients understand what they do well — full fiduciary advice for a fee. They recognize that we don't do that. We provide really good guidance, tools, content, etc. If it's obvious that a customer needs full advice,
estate planning, small-business advisory or philanthropic planning, we have a program where that customer is referred to an RIA.
Q: Do you have plans to charge for that referral program?
A. It's been reported that we're thinking about charging a fee, but to date, we don't have it. We are thinking through some improvements to that program, and we will likely introduce a fee. But we haven't been specific about that yet.
Q: Some look at the management turmoil at Fidelity and wonder what might happen to the custody business. Should they worry?
A. They shouldn't. It's a significantly sized business and growing fast. We don't report net new assets, but this business put up greater net new assets than Schwab last year and greater numbers through the first three quarters of this year. Our clients feel just fine about what we're doing and are increasingly voting with their assets.
Q: You came to Fidelity from Morgan Stanley. What do you like about the independent RIA space?
A. I love this area of financial services. You have a confluence of entrepreneurs, small-business owners or investors in the space, who are also pretty bloody good at dealing with individual investors from a relationship perspective. They are successful because they have all these things going for them.
E-mail Dan Jamieson at [email protected].
