Fidelity Investments has long been a powerhouse in the business of selling mutual funds directly to investors.
But when it comes to selling through banks, brokers, and other go- betweens who give advice in exchange for sales commissions, the world's biggest and best-known fund company has been an also-ran.
That's about to change, executives at the Boston-based firm say. Within five years, they vow, Fidelity will be the top seller of mutual funds through intermediaries, a channel that accounts for some 60% of retail fund sales. Three players, Capital Research and Management, Putnam Investments, and Franklin Resources, dominate the field.
"Isn't it Fidelity's birthright to be the market leader in every market we're in?" said Kevin J. Kelly, who took the reins at Fidelity Investments Institutional Services Co., the company's intermediary sales unit, 12 months ago.
Skeptics say they've heard this tune before, that Fidelity talks up big plans for its financial intermediary business every few years-but fails to follow through.
But the 43-year-old Mr. Kelly, an affable former college basketball player who stands 6 feet 7 inches tall, insists Fidelity is putting its money where its mouth is.
"We're not just playing with this," he said. "This is a massive strategic shift for us. If people are looking for tangible evidence of our commitment, they don't need to look very far."
Fidelity has long been an underachiever in the bank market. Although most bank investment programs offer the company's funds, Fidelity is rarely their top seller.
Such is the case at Michigan National Corp., in Farmington Hills, where Fidelity is near the bottom of the nine fund families the banking company sells.
But Jim Badge, the head of its retail broker dealer, said he sees Fidelity improving in concrete ways, such as hiring more bank wholesalers and providing better marketing materials.
"I'm convinced they're on the right track now," he said. "It's just going to take some time."
Fidelity's campaign to gain ground through banks and other middlemen is a response to market demographics, Mr. Kelly said. Baby boomers, flush with cash and enjoying their peak earning years, face a bewildering array of investment choices, including more than 7,000 mutual funds. Increasingly they are turning for help to financial advisers at banks, brokerages, and insurance firms.
"There are just too many choices out there," said Mr. Kelly, who is the successor at FIIS to J. Gary Burkhead, the executive who now runs Fidelity's personal investments and brokerage group.
The demand for advice is part of the reason Mr. Kelly projects sales at his unit will rise to $12 billion this year, from $5 billion in 1997. It comes as Fidelity's fund performance is rebounding after stumbling a couple of years ago.
Thanks largely to the rising performance, Fidelity could sell as much as $3 billion through banks this year, up from $2 billion in 1997, said bank channel chief Michael Kellogg. Mr. Kellogg said it's possible that Fidelity will overtake Putnam as the sales volume leader in the channel within five years.
While Mr. Kelly would not reveal Fidelity's overall investment in its intermediary business, he did list components of it, including a $65 million service center that opened earlier this year in Smithfield, R.I., and a $14 million project to make available 401(k) record keeping and administration.
FIIS employment is swelling: Before 1998 is out the unit's head count will have increased by 25%, to 1,600. Key additions include bank wholesalers, of which Fidelity has added six over the past year, for a total of 16.
"We will not be outmanned in the marketplace," Mr. Kelly said. "Our goal is to have more relationship managers than anyone."
And in an initiative that its competitors agree is crucial to its success, FIIS has been expanding the number of funds sold through financial intermediaries. It plans to add nine more by yearend, for a total of 38.
Another strategic change at FIIS anticipates more cross-industry mergers like the Citicorp/Travelers deal. Fidelity has realigned its sales approach so that it can deal with the individual components of such conglomerates or discuss big-picture strategy with the company's top brass.
In Mr. Kelly, Fidelity has entrusted its intermediary business to a relative newcomer. He joined the company in 1995 and distinguished himself by helping Fidelity become one of the top 10 fund players in Canada. He still oversees the Canadian operation.
Before that, Mr. Kelly was president and chief executive of Bimcor Inc., a Canadian investment management company with $12 billion of assets.
Fidelity is used to being atop markets-or being very close. Along with having the most assets from direct sales, it is the nation's top provider of 401(k) plans, the second-largest discount brokerage firm, and the third- biggest provider of 403(b) retirement plans for not-for-profit organizations.
When sales of insurance products such as variable annuities are included, Fidelity has assets of about $150 billion through the financial intermediary market. But its $49 billion of assets from pure mutual fund sales put it well behind the market leaders.
In all, Fidelity manages assets of nearly $700 billion.
But it has not traditionally thrown its full weight behind the intermediary business, where funds are typically sold with loads, or up- front sales charges.
"Fidelity's bread and butter had been the retail direct channel and the 401(k) business," said Robert J. Powell, a director at Dalbar, a Boston- based consulting firm. "There was no need to commit to this channel."
The forays that Fidelity did make into the business were often tentative and sometimes bumbling. It actually pulled out of the intermediary marketplace in the late 1970s, leaving brokers to worry that their clients would ditch them and begin buying direct. Since returning to the market earlier this decade, Fidelity has had to regain those brokers' trust, even as rival fund companies remind brokers of Fidelity's, well, infidelity.
Turnover atop Fidelity's intermediary business has also been a problem, observers say. Paul Hondros, who built up the unit in the early 1990s, was plucked to run the direct retail business in 1996 and later left the company.
"When you lose a heavyweight, even if the replacement is his or her equal, there is a perception in the marketplace that they've lost this giant," said Burton Greenwald, a mutual fund consultant in Philadelphia.
FIIS further hurt itself a couple of years ago, according to competitors, when it reduced the up-front commission paid to brokers. The company has since reversed course.
Many observers, including fund company rivals, say the field is open for Fidelity to make its move. But they also say the company faces a big hurdle-the fact that brokers see its direct sales business as a competitor eager to snatch their clients.
"Brokers don't like doing business with people who compete with them," said one fund company executive.
Mr. Kelly retorts that the direct and the intermediary businesses are distinct. Direct-sold funds attract savvy, do-it-yourself investors, and intermediary-sold funds attract the increasing number of investors who are looking for advice and hand-holding.
"I think the businesses are almost mutually exclusive," Mr. Kelly said.