With John W. ‘Jack’ Callahan of Fidelity Registered Investment Advisor Group

Since being named to lead Fidelity Investments’ adviser business last fall, John W. “Jack” Callahan has spent much of his time studying and articulating his new challenge.
The mission of the new president of Fidelity Registered Investment Advisor Group is more critical than that of his predecessors. The Boston-based company finally is relenting on its culture of strict self-direction and thrusting RIAs into the leading role for many of its clients with more than $1 million in investible assets.
Mr. Callahan, 49, is helping to build a referral network that moves big Fidelity retail accounts into the hands of RIAs more systematically.
He also is integrating the platform with the company’s substantial retail brokerage, clearing and 401(k) platforms.
Still, because of past difficulties, Fidelity may face challenges in convincing some RIAs that its right hand works in concert with its left.
“It just seemed like there was a disconnect [between 401(k) record keeping and asset custody at Fidelity] — like they were two different companies,” said Kevin Timmerman president of Steele Capital Management Inc., a Dubuque, Iowa, firm that manages $750 million.
“Even as a FRIAG adviser, there was no way to attach myself to that 401(k) account [administered by Fidelity],” he said. “I wanted to manage the [business owner’s] assets.”

Q. You recently spent a few days in Naples, Fla., meeting with some of your top RIA clients. How did that go?
A. I’ve been part of five Fidelity institutional companies over my 16 years here. I would say the mood at that client conference was as high as I’ve ever seen. Ellyn McColgan [Fidelity Investments’ president of distribution and operations] was there. [Edward C. “Ned” Johnson III, chairman and chief executive of Fidelity] was there. I was there. I got the feeling [advisers] thought we were walking the talk.
Q. Schwab [Institutional of San Francisco] is the legacy big guy, TD [Ameritrade Institutional of Jersey City, N.J.] is the feisty little guy, and Fidelity as custodian always has been somewhere in between. Is Fidel-ity establishing a clearer identity?
A. I hope so. My presentation that I did [in Naples] was entitled “Bringing the power of Fidelity to our clients,” and I tried to talk about what you just asked. Basically, we’ve been looking at what’s unique that we can take advantage of here at FRIAG.
We think that first and foremost, it’s these millionaires that are on our retail-brokerage platforms, and we think there’s an excellent opportunity to service them with our advisers. The second thing is to build out the strongest platform in the marketplace through our technology commitment.
The third piece was retirement expertise. We are the industry leader in the 401(k) business. We are the industry leader, interestingly enough, in the [individual retirement account] business.
Helping our advisers, helping our [retirement plan administrators] and even our trust business take advantage of the huge retirement opportunity that’s going to be in front of all of us — with that leadership position, we feel it’s something we can do.
We look at National Financial [Services LLC of New York]. We own it. You look at the breakaway broker business. We look at our 401(k) business, Fidelity Employer Services Co. We own all the pieces [necessary to service advisers doing commissions and fees] — all three pieces to the puzzle.
Q. Competitors say that clearing services are a commodity, and so ownership of National Financial Services gives Fidelity little leverage. Is there a way for ownership to matter?
A. [Norman R. Malo, president and chief executive of National Financial Services] and I have a project underway where we’re looking at National Financial. Also, we are looking at FRIAG and looking at our operations group to find out how we can take these three pieces that we own and build a platform that we can take to the market for those advisers who are breaking away and who have some fee-based business.
Q. But what issues can an integrated Fidelity platform solve that a cobbled- together platform from various providers can’t?
A. The tricky part of operating in a hybrid market [is] issues like, should we take this broker on or not? The trade failed. We can’t get the commission paid. Bad trade.
A lot of it is going to be on the operations side of the house. As you offer a hybrid platform, you’re going to have those thorny, knotty operations issues. We hope by owning all three pieces, we can put processes in place that allow us to provide the support — whether it’s a brokerage firm that decides to use the platform or whether it’s an investment advisory firm that decides to use the platform. We think that’s a big advantage.
It’s not glamorous, right, but versus separate and distinct companies who form an alliance and get into those issues, we think it could be more difficult to operate in that environment than having it all under one roof.
Q.Why build the platform now?
A. There are two or three things happening in the marketplace that are seriously pushing us to build that platform, and it’s more than just breakaway brokers. If you were to look at National Financial, well, Norm has clients asking him for fee-based capability.
I have clients asking me for commission capability. Then there are these breakaway brokers that are looking for ways to do commission business while they pursue fee-based business. Frankly, Norm’s building a five-year strategy; we’re building a five-year strategy. We think we have an advantage, because we have all three pieces. This is one of our top projects for this year.
Q. There is so much talk about breakaway brokers year after year, but they never seem to make a material difference in asset growth for you or your competitors. Can that change?
A. I think it’s meaningful. Last year, we added 55 [breakaway] brokers. I think, looking down the road, that they’re almost looking for consulting services. They want a methodology if they’re going to break away. That’s the missing piece. Right now, it’s kind of clunky the way that everybody does it.
Q. Are you having any success attracting advisers that manage big money?
A. This year, we’ll bring on [eight to 10 advisers with more than $1 billion] that are going to open up sizable positions with us. I’ve only been here six months, but I’d say that’s a record. We’re targeting big advisers. That means we bring on a couple hundred million.
Q. Why do advisers choose Fidelity?
A. There are advisers that are looking for an alternative. They like our privately held nature. We can take a longer-term view of the operating margin in this business. I can tell you we’re earning a lot less than our publicly held competitors, because we can.
Ned Johnson thinks this is a terrific business. He wants us to build out these platforms. Ellyn and Ned want us to have the strongest platforms in all three businesses. Last year, Fidelity spent over $2 billion on technology.
Q. I know one initiative is to use RIAs to retain affluent clients. How is that going?
A. I think it’s going well. If you look at the percentage of millionaire households that Fidelity has in its retail-brokerage business, we lead the industry. Fidelity has learned that many of those investors have complex, sophisticated needs, and we’re looking to advisers to complement our retail services. Last year, we referred $2 billion. This year, we’re seeing a good increase in the leads that are closed.
Q. I understand you instituted quality controls of calling clients to determine whether they are satisfied with their advisers. Is that working?
A. It’s early still. We are beginning call outs. There’s a methodology called the customer experience index to measure the satisfaction of a client. We will survey all investors that are referred, and then we’ll do a follow-up call in about six months to see how the service experience is going.
Q. Are advisers happy with you calling their clients?
A. At our executive forum, advisers were very open and receptive. I think they realize that there is an excellent opportunity for them here also. They want to do everything possible to ensure a very high quality of service. In fact, I think our advisers would be open to even more discipline being put into the process, in terms of follow-up.