As head of Fidelity Investments' defined contribution business for 11 years, Bob Reynolds helped secure Fidelity's position as the world's largest money manager. Now, he's chief operating officer, and he says he's still focused on how to make Fidelity even bigger. In an interview with Pensions & Investments' Dave Kovaleski, Mr. Reynolds shares some of his ideas.
Q What has been your focus since becoming COO two years ago?
A I had been primarily involved in institutional retirement, so when I first took the job it was really about just getting your arms around other parts of the business. Then it was looking at organizational structure, the people, making sure the organization was set up the right way, making sure the right people were in place, spending a lot of time with the different businesses. The focus has been on setting direction and emphasizing what we want to be working on.
Q What has been Fidelity's approach during this market downturn?
A 2001 was our second best year ever as a company (in terms of earnings, with 2000 the best).We have great distribution across the board and that carries us through difficult years. We had tremendous continued growth in the retirement business, but we also run a diversified investment portfolio, not only domestic equity, but international, fixed income, money market - and last year the best year ever for fixed income sales.
I think Fidelity benefits by having diversified distribution and diversified product offering. Something is always working at some part of this company.
(As a privately held company), we can continue to invest in the business, invest in people, at times when other companies are worried about next quarter's earnings. We certainly have our eye on next quarter's earnings but we can take a longer view of the market. This year alone we'll spend over $2 billion on technology and a good portion of that is spent on development.
Q Is Fidelity toning down the aggressive nature of some of its funds?
A We believe in offering people choice so people will put their money where they think it's best for their situation. We have funds that are very style specific and if it's a large-cap aggressive equity fund, it's going to stay a large-cap aggressive equity fund.
The reason our assets are down is the market has been down over the last two years. Our assets are down half of what the market is, so we feel very, very good about that. Our net fund sales were excellent last year and in the first quarter this year we have $10 billion-plus net sales into our equity products.
Q What are your thoughts on the markets going forward?
A At some point in the future, international funds are going to be a very attractive place to put your money. Also, with the baby boomers now in their 50s, there's going to be a need and a demand for more income-focused products.
Q How did you maintain the defined contribution business as an industry leader?
A Having a diversified fund family and having funds that cover the whole curve really helped us in building the 401(k) business. Then, it was to commit heavily to technology, not only to record keeping, but also with other services around 401(k). Technology affects every business we're in. Our commitment...enables us to provide the type of service that we want to provide for our customers. Also, we were fortunate to put together a great team of people.
Our goal is to grow our leadership position in the defined contribution business and to do that we need to do more of the same. We need to focus on customer service, whether that's participants in the plan or plan sponsors. We need to have a continued investment in technology. The other part is continuing to invest heavily in the education side of the 401(k) business.
Q How committed is Fidelity to the defined benefit business?
A We've been in the defined benefit business a long time. The DB side of the business is where I started at Fidelity. Back in the late '80s; we probably had $11 billion to $12 billion under management.
Today we have $60 billion to $70 billion in the separate account business and we think there is a lot of growth potential. We think there are some real opportunities for our international...(and) fixed-income capabilities to be brought to the DB business. The renewed focus is trying to put together different types of products, and taking advantage of Fidelity's capabilities in different areas.
In the DC business, we have relationships with over 10,000 corporations. We need to do a better job having them know what we can do for them on the defined benefit side.
Q Where would you like to see Fidelity in 10 years?
A Our belief is Fidelity is a growth company in a growth industry. We see the next 10 years as being a huge opportunity, not only in the U.S., but also around the world. We feel like we're positioned to take advantage of market opportunities around the world and we feel pretty confident that we're going to be in the right place when the opportunity happens.
Q Any hobbies or activities outside of money management?
A I officiated college football for 11 years. When I first moved up here (from North Carolina to work at Fidelity) I officiated college basketball games for the first year or two. But it was so time-consuming. I'd be at a meeting in Chicago and have a game at the University of Vermont at night.
