Trailing its archrival by more than five years,
Fidelity Investments is finally unfurling its own initiative to match investors with financial advisers.
After testing it for a year, the Boston mutual fund giant last week took the wraps off its long-anticipated referral program, Fidelity Advisor Access, which matches Charles Schwab & Co.'s referral program.
Advisor Access, free to qualified advisers, made its debut in eight markets, including Boston, New York and Washington. Three more markets will be added by early summer.
"It's a business development opportunity for our advisers," says Jay Lanigan, division executive of the client group at
Fidelity Investments Institutional Brokerage Group, which caters to advisers.
"The advice marketplace is as competitive as it has ever been, and is likely to increase as the need for advice grows," he says.
Promotion push
But how useful the initiative will be to advisers remains to be seen.
While Fidelity intends to promote Advisor Access through its 78 investor centers, it has no immediate plans to tout the program to the bulk of its 16 million retail customers through a mass mailing or any other broad-based marketing initiative.
"Obviously, advisers are getting exactly what they are paying for with this program," says Jim Lowell, a money manager and editor of Fidelity Investor, an independent newsletter published in Potomac, Md. "It's free, but it doesn't appear like there's a lot of wheels being set in motion to promote it."
Pushing its adviser referral business aggressively would almost certainly undermine Fidelity's bread-and-butter business of directly selling mutual funds and other investment services, says Mr. Lowell.
Familiar position
Fidelity, the world's biggest mutual fund company, with $854.5 billion in assets, is used to competing with its own advisers. Besides selling the bulk of its funds directly, it offers money management to investors with assets of $50,000 or more through a registered-investment-adviser subsidiary, Strategic Advisers Inc. in Boston.
Eric Kobren, a Wellesley, Mass., money manager and publisher of Fidelity Insight, another independent newsletter, has participated in the test of Advisor Access for more than a year. The results, he says, have been mixed. "It definitely has resulted in additional business for us," he says. "But it takes time."
Mr. Kobren, a former Fidelity executive whose firm manages about $800 million in assets, is unfazed by the mutual fund giant's presence on both sides of the asset-gathering fence. "All is fair in love and war," he says.
For its part, Fidelity disputes the notion that it is in competition with advisers. Whether an investor is referred to an outside adviser or one of its own products or services will depend on the particular needs of that investor, says Mr. Lanigan.
"The reality is that ultimately the end client is going to make a choice," he says. "We're going to listen to them and try and figure out what's the best way to meet their needs." Fidelity has confirmed that there will be some incentive or compensation for branch reps to push referrals, but it would not provide details.
Fidelity's push into the adviser referral business is a direct challenge to San Francisco-based Schwab, which so far has amassed $10.3 billion in assets through AdvisorSource. A total of 430 Schwab advisers realized $5.2 billion in new assets from 22,056 referrals in 2000, up from $3.5 billion in new assets and 16,700 referrals in 1999.
During the first quarter of 2001, a record $1.5 billion in fresh cash went to advisers enrolled in AdvisorSource, up from $1.3 billion in the year-earlier period.
Schwab, which charges advisers a minimum of $8,000 per year to participate in AdvisorSource, declined to comment on Fidelity's entrance into the adviser referral business.
"This is going to be a real game of catch-up for Fidelity," says Louis Harvey, president of Dalbar Financial Services, a Boston mutual fund consulting company.
Fidelity, however, isn't losing sleep over Schwab's gargantuan lead. "We don't view it as a disadvantage," Mr. Lanigan says. "Are we late? Are we not late? We're really not concerned with that."
Others in the game
While Schwab is Fidelity's most formidable competitor, it is not the only one. TD Waterhouse Group Inc. of New York took its referral program, Advisor Direct, national in November. And Seattle's Microsoft Corp. and Dalbar two years ago teamed up to launch a website that links investors and advisers.
"We're not in competition with Fidelity," says Mr. Harvey. "I mean, I wish we could compete with what they are doing, but that's not even realistic."
To date, about 50 advisers have signed up for Advisor Access, out of a base of about 950 that have assets under custody at Fidelity. To enroll, advisers must meet certain criteria such as being a registered investment adviser for at least five years. They must also keep a minimum of $50 million at Fidelity.
While declining to comment on the number of referrals or the assets that have gone to advisers through Advisor Access in the past year, Mr. Lanigan says the program has generated an average opening account balance of nearly $1 million.
Besides Boston, New York and Washington, the program is available in Atlanta, Dallas, Cleveland, Boca Raton, Fla., and Morristown, N.J. Over the next two months, it will be rolled out in Chicago, Los Angeles and San Francisco.
The program, which is open only to individuals with a minimum of $250,000 to invest, will be marketed mainly through Fidelity's investment centers.
"We're going market by market," Mr. Lanigan says. "It'll probably take until the latter part of this year and into 2002 before this thing is completely rolled out."
