BOSTON - Fidelity Investments, No. 1 in just about everything it does, is a few ticks shy of the top ranking in sales through banks and other intermediaries.
It aims to rectify that by the end of next year and has committed significant resources to Fidelity Investments Institutional Services Co. in hope of reaching that goal. "We'll see. It's always a risk when you talk about it because everyone will hold you to it," the unit's president, Kevin J. Kelly, said in a recent interview. If the No. 1 position in the category were achieved in 2002 instead, "it would still be a good thing," he said.
Two years after Fidelity infused more than $100 million into its institutional services company, the unit is the fund giant's fastest-growing business. It had a record 1999, with $18.6 billion of net sales, up 51% from 1998 and about 280% from 1997. Assets under management spiked to $210.6 billion, up 24% from 1998 and 94.2% from 1997.
Even so, it was ranked third both in net flows and assets under management among fund companies that sell through intermediaries, according to data it crunches internally with information from Lipper Inc., and Strategic Insight.
The bulk of Fidelity's mutual fund assets comes from its direct business. Altogether the company managed $810.7 billion of fund assets at Feb. 29, according to Financial Research Corp. of Boston. Its closest competitor, Vanguard Group of Valley Forge, Pa., managed $543.9 billion.
It is becoming more common for companies that sell directly to investors to chase the intermediary market, but none has gone to the extent Fidelity has. It says it believes that sales through intermediaries will continue to be strong and that to compete effectively Fidelity must sink its teeth into that market.
"Firms that recognize that have so far been the big winners," Mr. Kelly said.
Even skeptics concede that Fidelity's financial intermediary arm has done a good job of picking itself up from the doldrums.
After some bungled attempts to crack the intermediary market, Fidelity gained momentum several years ago, only to lose it after changing the pricing on its funds, observers said. But the company modified its pricing, and with strong performance, financial commitment, and a more focused marketing effort, it has become stronger.
Sales of Fidelity's funds through bank brokerages, for example, rose 48% last year, to $3.4 billion. The fund company was ranked fourth among those that sell through bank brokerages, behind Putnam Investments, Aim Management Group, and Franklin Resources Inc.
Fidelity sells its products through 4,200 financial institutions, including 1,200 banks. It worked with 58,000 brokers in 1999, up from 49,000 at yearend 1998, a spokesman said.
But it still lags other fund companies in distribution, a competitor said. "They were able to throw more resources at a fewer number of firms," the competitor said.
Fidelity is seeking to expand its roster of distribution partners. To do so, it intends to keep the focus on initiatives such as its BusinessPulse marketing program, a spokesman said. Begun last year, BusinessPulse gives the companies that sell Fidelity's funds educational materials and marketing support designed to increase business.
The materials include a quarterly magazine with sales strategies, fund updates, and seminar kits. Fidelity expects to add up to 20,000 investment advisers a year through the program.
BusinessPulse does not specifically push Fidelity's funds because brokers like to work with companies that help them build their overall business, not just peddle particular products.
A few weeks ago Fidelity began a referral-training program for bank tellers. And starting in July, it plans to offer a sales training program for both new and seasoned brokers in bank brokerages, the spokesman said. This was developed at the request of client banks that want their employees to function more as wire house brokers do, he said.
The spokesman said Fidelity would also continue to promote Lifestage Planning, an Internet service that helps financial advisers gather information for clients and gain access to information on sales strategies. The service is being rolled out in stages; the first, which made its debut this month, focuses on people approaching retirement.
Fidelity also plans to put resources into products and programs designed to help clients who are drawing down their retirement savings. "It's obviously a huge market as baby boomers start to retire," the spokesman said.
Meanwhile, Fidelity is further expanding its offices to accommodate the growing intermediary business. It built a corporate headquarters for the intermediary business in Smithfield, R.I., last year, and is putting up a building nearby for a roughly equal number of employees, which is to open at yearend. Together the buildings are to house 2,500 employees.
"It'll give us the space that we need to grow the business," Mr. Kelly said.
Fidelity's institutional business at yearend comprised $70 billion of assets in the Fidelity Advisor Funds, $50 billion in variable insurance products, $45 billion of retail funds and offshore funds sold through intermediaries, and $45 billion of money market funds.
Mr. Kelly attributed Fidelity's growth last year to several initiatives. It added nine funds to its Advisor family, bringing the total to 41. It also began offering a charitable gift fund - a way for donors to invest in mutual funds, get a tax deduction, and donate some of the proceeds to a charity.
Last year Fidelity also rolled out a 401(k) program designed for retirement plans with fewer than 100 participants; it combines Fidelity's mutual funds and a proprietary record keeping platform.
Mike Mortensen, president and chief executive of PNC Brokerage Corp., said Fidelity has done a good job in the past two years of boosting its wholesaling efforts and has been rewarded for this.
In 1999 Fidelity was ranked among the top three sellers at the brokerage arm of PNC Financial Services Group, up several notches from a few years before. "They're really helping brokers to grow their business," Mr. Mortensen said, "and in return the brokers reward that by selling their product."
Some brokers are wary of working with Fidelity, viewing the big company as a competitor because of its direct business. But in many cases it is more a philosophical issue than a practical one.
"Brokers don't like Fidelity because they compete with them, yet their brand is so dominant," one competitor said. "There's also a high comfort level when you mention their name."
Indeed, Mr. Mortensen said it is a nonissue in his firm. "We find it in our best interest to have the Fidelity name."
Mr. Kelly said Fidelity's brand would become even more important if the stock market falters. The brand "hasn't been appreciated as much in this bull market that we've all been a part of," Mr. Kelly said.
But when a bear market hits, "people will be looking for the calm harbor in the storm."