Fidelity Unit Hopes to Lure Banks With Fee Program for Wrap Account

Trying to capitalize on a growing trend, mutual fund giant Fidelity Investments is offering a wrap account fee program to banks through its clearing house subsidiary.

National Financial Services Corp., a unit of Fidelity, has introduced a wrap account composed of Fidelity and non-Fidelity mutual funds. National Financial has more than 80 bank broker-dealer clients, more than any competitor.

Dubbed "Symphony," the wrap account will offer clients five different portfolios, with seven to 15 mutual funds in each. The portfolios vary in risk and objectives, from capital preservation to aggressive capital growth.

Wrap accounts are designed for investors willing to make a high initial investment and pay a hefty fee to get professionals to manage their portfolio on a daily basis. Symphony requires a minimum balance of $50,000.

The investment product is gaining in popularity among investors who prefer giving brokers a standard fee instead of the traditional commission for every transaction, which sometimes encourages account churning.

Banks will split the fees with National Financial and an investment management consultant, Brinker Capital, Radnor, Pa., which is managing the funds.

Client fees start at 1.75% of assets under management and get lower for larger accounts. The bank will generally receive 1%. Each bank determines how much to pay the broker who sells Symphony.

Fidelity is one of the few fund companies that has made dramatic inroads into banks with its no-load offerings.

One reason no-loads have trouble with the channel is that bank brokers get commissions for their sales and consider the no-load companies competitors. But Fidelity is hoping its wrap fee program will appeal to bank brokers.

"If you are a financial adviser or broker, you still have to get paid for the services you provide, and one way to offer that type of service and use no-load mutual funds in lieu of commissions is a wrap fee," said Robert Middleton, vice president of marketing at National Financial.

Mr. Middleton added that National Financial is working on a product designed for trust departments. Symphony is being pushed through the retail side because bank trust departments sell bank-managed funds, which aren't offered in Symphony.

"We're working on something that would include significant flexibility for that market," said Mr. Middleton. "(Symphony) does not include the bank proprietary funds, but we know we need a wrap fee program that does."

Included in the Symphony program are marketing support, broker training, and investment management services provided by Brinker. Brinker will perform administrative work too, including reporting fund performances quarterly.

Mutual funds picked will be in the top third of their objective category in annualized return for the past three years.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER