If you can't beat em, join em.
A unit of Fidelity Investments is negotiating with Charles Schwab & Co. Inc., its archrival in the mutual fund distribution and discount brokerage business, about increasing the distribution of mutual funds through Schwab's Mutual Fund Marketplace.
The firm wants to increase sales of its funds through a subset of Schwab's Marketplace - a network of fee-only financial planners (registered investment advisers) under the Schwab Institutional umbrella.
"We want to be 20% of Schwab's RIA marketplace" in market share, said Paul Hondros, president of Fidelity Investments Institutional Services Co. "We are now about 6% to 7%."
Schwab's Mutual Fund Marketplace, which enables customers to invest in as many as 900 mutual funds without transaction fees, has $35.1 billion, according to Glen Mathison, a Schwab spokesman. Mr. Mathison would not say how much of that total is sold through registered investment advisers but said it represents less than half. The Schwab RIA channel also has a set of funds that it offers exclusively.
The expansion of the Schwab effort is one of many surprising initiatives in the works at Fidelity Investments Institutional Services Co., which provides investment services to banks, insurance companies, investment advisers and broker-dealers. Although the unit is part of Fidelity, a firm known for its aggressive equity and sector funds, it is taking a far more conservative approach.
Mr. Hondros said the unit plans to expand its product line of Fidelity Advisors funds, which carry sales charges and are sold through intermediaries. Within the next eight months, three or four fixed-income funds will reintroduced. The funds are not yet in registration with the Securities and Exchange Commission.
"We've targeted the fixed income area as an area of growth and emphasis for us. We could use one or two more international funds but fixed income is a more pressing issue for us," he said.
On May 3, Fidelity Investments, the parent company, named Fred Henning director of fixed income and money market investments. He previously was managing director of Fidelity and head of the money market division.
"Competitors say Fidelity is walking both ends of the street. On the retail (direct-marketed) side, you basically need Baskin-Robbins - all the products the consumer wants to choose. On the broker side, if the consumer and broker had a bad experience, they blame Fidelity."
As a relatively new kid on the block, "we want to manage the marketing risk, if you will, in these channels," he said.
One new channel is Schwab.
In order to be sold through Schwab's RIA network, Fidelity Advisors funds would have to be available at net asset value, Mr. Mathison said. Schwab has other load funds available at NAV for RIAs, but most are no-loads.
Fidelity's own answer to the Schwab Mutual Fund Marketplace is its FundsNetwork unit. The unit has attracted $3 billion in assets to other companies' funds and $7 billion to Fidelity funds. Fidelity also has an RIA distribution network through Fidelity Investments Institutional Services Co. albeit on a much smaller scale than Schwab. While Schwab's network distributes funds through 4,500 RIAs, Fidelity's includes 500 to 600.
The agreement also would enable Fidelity to provide support to the RIAs that distribute the Fidelity funds. Fidelity would provide information on performance and investment strategy and philosophy of the fund manager.
