[Contains Schwab comments]
Fidelity Investments, responding to
Charles Schwab Corp.'s June announcement of price reductions for independent advisers and their clients, is rolling out a competing program with a few extra twists.
As of October 1, Fidelity will eliminate online commissions on equity and option trades for new accounts introduced by registered investment advisers and reimburse account-transfer fees that their clients pay to leave former financial services providers.
The Boston-based firm also said today that it will waive annual position or custody fees for new alternative investment accounts, personal trust accounts and separately managed accounts in its SMA supermarket, and reduce by as much as 50% the annual licensing fee for advisers who use Advent's multi-custodial portfolio performance platform.
The waivers on commissions and investment products will run through June 30, 2010, on all new-to-Fidelity relationships introduced by RIAs. The rate-card reduction on the Advent application will cover annual fees for 2010 and 2011. Fidelity also said it will reduce by 10%-35% for an unlimited time the annual service fee paid by users of the Oracle customer relationship management application on its Wealth Central platform.
“This speaks to how competitive the marketplace is now,” said Paul Murphy, national sales director at Spire Investment Partners, an RIA and broker-dealer with almost $1.5 billion in assets under management that uses Fidelity as its primary custodian and clearing broker. “We are in a business of pennies and nickels and dimes. Everything helps, especially in this environment.”
While waivers of already low trading commissions may not be vital to advisers who focus more on long-term wealth management services than active positioning, the discounts on the Advent application can provide significant savings. One adviser at a firm managing more than $1 billion said portfolio management fees can run more than $150,000 a year.
Michael Durbin, president of Fidelity's institutional wealth services unit for RIAs, wouldn't discuss how much fee revenue the firm expects to lose on the promotion, but said its long-term goal is to build market share among advisers who have become more discerning about evaluating their choices.
“We give our clients a lot of credit in deciding where to custody their assets,” he said in a phone interview, “and we want to make sure that price points are not a barrier.”
Most large advisers use multiple custodians, and will direct new client assets to the best price offering if servicing and technology are relatively equal, consultants said.
“Everything is won at the point of sale,” said Timothy Welsh, founder of Nexus Strategy, LLC, in Larkspur, Calif., and a former marketing official at Schwab's custodial unit. “In this economy, a recessionary model resonates, even with high net worth consumers and their advisers.”
Schwab still leads
Fidelity has long trailed Schwab, the pioneer of custody for independent advisers, and its market share may have decreased last year, according to estimates from Robert Ellis, a principal at Novarica, a wealth management consulting firm. At the end of 2008, Schwab had $477 billion of RIA assets under custody from about 6,000 advisers compared with $290 billion from 3,500 advisers at Fidelity, according to Aite Group, another consultant.
Schwab announced in late June that it would waive commissions over the next 12 months on online stock trades, and reimburse account-transfer charges, for new accounts brought in by advisers through Dec. 31. It also is waiving the licensing fee it charges for its proprietary portfolio management software in 2010.
Since July 1, it has added 30,000 new accounts and waived $1.3 million in commission and transferof-asset fees, said Alison Wertheim, a spokeswoman for Schwab.
"Innovation by industry leaders is often swiftly replicated," she said about Fidelity's announcement. "The moves we announced in June were designed to help advisers fuel their growth and efficiency, and we remain squarely focused ontheir need going forward, not on the moves of our competitors."
In playing catch-up, Fidelity has the advantage of being able to add sweeteners. Its waivers will apply to any new account introduced until the program ends on June 30, 2010, meaning an account introduced in late May would still qualify for a month's worth of free trading. (The program's introduction, of course, trails Schwab's by three months, meaning an account introduced to Fidelity on Oct. 1 would enjoy nine months of waivers compared with 12 months for one introduced at Schwab last July 1.)
Unlike Schwab, Fidelity has no limit on account transfer fees reimbursed and is waiving commissions for options as well as stocks. Schwab's promotion also does not cover fee waivers for new personal trust accounts or separately managed account fees. (Both firms price those fees based on the overall relationship with the adviser.)
Fidelity also is taking a slap at Schwab's controversial decision earlier this year to restrict the amount of hedge fund and other alternative assets it will custody for advisers. Fidelity said it will waive its $50 per position fee for new alternative investment accounts introduced through June 30.
Officials at the RIA custody units of TD Ameritrade Holding Corp. and Pershing LLC, which rank behind Fidelity in market share, said they had no immediate plans to follow Schwab and Fidelity with the promotions because their firms continually tailor pricing to the needs of advisers on a case-by-case basis.
For additional details and commentary, see the Sept. 14 issue of InvestmentNews.
