Fidelity Investments has long been able to command the loyalty of banks and brokers by dint of its name and reputation. But in the wake of some recent pratfalls, the mutual-fund giant is in the unaccustomed position of having to explain itself to these constituents.

In a messy episode three weeks ago, one of Fidelity's top executives defected to run another fund company-a day after announcing in a Wall Street Journal article that he was considering doing so.

The news followed disappointing fund performances and a stream of departing portfolio managers. It also came soon after the appointment of a new chief of sales through banks and other institutions.

As a result, bankers are now asking for a signal that Fidelity remains committed to product support and educational programs for banks.

Fidelity has traditionally had a solid standing with banks because of its great funds, systems, and resources. But bankers say privately that the company has not always followed through on promises to provide extras like additional training and new technology.

With the recent changes, some of that concern has been exacerbated.

"It leaves questions as to what their strategy is," said Allen Croessmann, director of retail marketing and investments at BankBoston.

"There seems to be very much a concern among typical investors about Fidelity," added Curt Anderson, president of Busey Bank's broker-dealer, First Busey Securities, in Urbana, Ill.

"People used to come in and ask for Fidelity by name. We hardly ever see that anymore," he said.

To be sure, bankers who sell Fidelity funds say they are confident the setbacks won't seriously weaken the mutual-fund giant over the long term. But as Mr. Croessmann put it: "There have certainly been chinks in their armor."

For bankers, one of the most worrisome chinks was the departure in September of Paul Hondros, the company's energetic head of retail operations, for the top spot at Pilgrim Baxter & Associates, a fund company in Philadelphia.

A blunt-speaking former Philadelphia policeman, Mr. Hondros is credited with building up the company's distribution through banks and brokers when he headed Fidelity Investments Institutional Services.

Mr. Hondros moved to Fidelity's retail distribution arm in September 1996, and was succeeded on an interim basis at FIIS by J. Gary Burkhead, a vice chairman of Fidelity's parent, FMR Corp. Last month, FIIS was given a new leader: Kevin Kelly, the former head of Fidelity's Canadian subsidiary.

Reporting to Mr. Kelly is Michael Kellogg, head of bank sales.

"A certain amount of turnover is inevitable, and it's not necessarily cause for concern," said Joel Calvo, president and chief executive officer of PNC Securities Corp., Pittsburgh.

"I'd want to review with the company the reasons for the turnover," he added.

In a recent interview, Mr. Kelly said bankers can rest assured that Fidelity remains committed to the 600 banks that sell Fidelity funds and account for about $50 billion of the company's $572 billion in assets under management.

And he pointed out that Mr. Kellogg has been in his job for more than two years.

"I think that, if anything, you'll see this commitment accelerate even further," he said. Mr. Kelly described himself as a "passionate individual" when it comes to service and relationships.

Aside from changes at Fidelity's institutional services arm, the fund company has seen turnover among its portfolio managers. Since January 1996, more than 20 fund managers-a quarter of its total roster-have left the firm.

And Fidelity continues working to quell criticism that its fund managers strayed too far from their funds' investment objectives in search of higher returns.

Furthermore, Fidelity's funds, which used to regularly post spectacular returns, have cooled. The average equity portfolio within the Fidelity Advisor family returned 14.02% last year, while the S&P posted 22.94%.

That may explain why Fidelity has dropped out of the top five bank distributors in recent years, industry observers said. Another factor was Mr. Hondros' departure from the institutional services group one year ago.

"The broker-dealer community, with whom he had great relationships, questioned their commitment to the business," said Louis Harvey, president of Dalbar Inc., a Boston-based consulting company.

Asked about the decline among bank-broker dealers, Mr. Kellogg said, "Clearly our goal is to improve. We have to provide good performance, good products, good communication and information to educate investment professionals about what we do. And I think we'll do well."

Fidelity's fund sales through banks grew more than 20% in each of the last two years, Mr. Kellogg said, adding that he expects 20% sales growth in 1998. Those numbers are "meeting our expectations," he said.

There are signs that Fidelity is making the right moves, observers said. This spring, chief executive Edward C. Johnson 3d named a new head of Fidelity's investment management unit, tapped three deputies, including his daughter, and filled the company's chief operating officer post for the first time in more than a decade.

"They've had well-publicized problems in terms of equity performance," said Burton Greenwald, a mutual-fund consultant in Philadelphia. "They won't continue to have the market share they had in the past, but they're going back to basics. I think they've put more discipline into the organization."

Fund managers are said to be hewing more closely to their funds' investment objectives.

And equity-fund performance has improved substantially this year, as a glimpse at the performance of the Advisor funds shows. The funds' average return in 1996 lagged the S&P by a fat 9 percentage points. But their 1997 return so far of about 26% trails the S&P by less than 4 percentage points.

Mr. Harvey argues that Fidelity's prestige will keep it in demand among bank customers.

"Banks should line up to go into Fidelity," he said, adding that with all the changes there, he feels the company is likely to remain the opinion leader and the financial leader in the business.

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