A Fidelity Investments unit president says expanding its product base and increasing distribution have given it more heft through intermediary channels including banks.
Fidelity reported Thursday that Fidelity Investments Institutional Services Co. - the unit that offers investment management services through financial advisers at wire houses, regional and independent broker-dealers, banks, and trust and insurance companies - had expanded the adviser roster it works with by 26% last year, to 47,000.
Joseph P. LoRusso, the unit's president, said a strong set of products positions Fidelity for more growth, particularly through the bank channel. About 21,000 financial advisers began distributing Fidelity Advisor Funds in 2004. He said he expects the company to be working through 65,000 advisers within three to five years.
"We have seen great growth from the bank channel, and we expect more," Mr. LoRusso said. "We have seen banks take advantage of our international fund offerings as they continue to move to an open architecture model that features nonproprietary funds. Banks want to take advantage of the capabilities Fidelity offers."
Fidelity has aggressively introduced international, value, and fixed-income funds in the past three years in an effort to develop more adviser relationships, he said. During the three years, it has added 31 funds, including eight last year, to bring its fund menu to 73 portfolios.
"From talking to consultants and our research, we have data that show that 85% of an adviser's business is done with three firms," Mr. LoRusso said. "We want to be one of those three companies, but to be one of those three we needed a broader product line."
The Fidelity unit, which developed its assets and reputation through intermediaries by offering growth and blend funds, moved to value, international, and fixed-income for its lineup of adviser-sold products in the past three years, he said.
This year, Mr. LoRusso said, he expects Fidelity to be less ready to launch products.
"If we feel there is a need, we'll launch a fund, but to be honest, I don't think we are missing 15 funds from our lineup," he said. "We will selectively look at product opportunities because we are committed to having a broad product set."
Fidelity reported that its Advisor Fund equity and fixed-income net sales rose 56% last year, to $6.1 billion. And assets under management ended the year at nearly $200 billion, up 11% from 2003.
Mr. LoRusso said enhancing the fund lineup enabled Fidelity to expand its 401(k), 529 college savings, and retirement-income-planning solutions.
Growth last year in the adviser-sold 401(k) platform, Fidelity Advisor Premium 401(k), brought administered assets to a record $11.6 billion. Assets managed by Fidelity in other employer-sponsored plans grew 22%, to $9.3 billion. At Dec. 31 Fidelity served more than 2,000 401(k) plans and 330,000 participants, up 9% and 10%, respectively. Assets in Fidelity's adviser-sold 529 plan grew nearly 50%, to $1.1 billion.
Mr. LoRusso said assets burgeoned as the company enhanced its distribution model. It increased the number of associates that support intermediaries by 40% in the past 14 months. The company added specialists who focus on 529 college savings plans, he said, and retirement-income specialists to help advisers serve customers after they retire.
There is interest from the bank channel in Fidelity's funds, Mr. LoRusso said, but interest also exists in the company's products like 401(k) plans and personal high-net-worth management. Fidelity products are increasingly being sold through bank branches, he said.
"Our products are a concept that makes sense for customers that walk into a branch, and branches have been very receptive to this," he said. "We are a trusted name in the industry with a well-respected brand."
Analysts said intermediaries that sell Fidelity products have been pleasantly surprised by the results because the company, unlike some of its large competitors, has remained unscathed by scandal.
"When a large company keeps its nose clean, it pays off in the end," said Burton Greenwald, a Philadelphia investment analyst. "These scandals have stained most of the industry, and when a large firm remains clean investors will take notice."
Mr. LoRusso said he does not really see a cause-and-effect relationship between Fidelity's success and its ability to avoid scandal.
"If an adviser has left another [company] it usually has been over performance and the products that we can deliver," he said. "Our brand is very recognizable. Customers know what the Fidelity brand has to offer. But when advisers and assets leave another firm, the determining factor is usually performance."
Fidelity wants to develop products opportunistically, Mr. LoRusso said, and expand its distribution model to maintain momentum this year.
"It is hard to look at our business in calendar year increments," he said. "Because December 2004 came and went doesn't mean we are scrapping our organic growth strategy. Things we started in December 2003 and continued in 2004 will continue in 2005. We want to capitalize on the intellectual capital here and grow the bottom line at Fidelity."
