Fidelity Broking Strategy - Better Performance than Schwab

July 2007
Moving beyond customer satisfaction

Fidelity is moving beyond customer satisfaction: customer success.

What is customer success? Not being satisfied with how well you did yesterday and looking in the opposite direction: thinking about how an individual can reach a goal.

In Ellyn's view, most consumers are setting goals with four big factors in mind: buying a house, educating children, planning for retirement, and taking care of elderly parents. Starting with investors and offering products to help them make next best decisions on the way means customer success, both for the individual and the company.

Looking forward, Ellyn McColgan (Head of Fidelity Brokerage)sees 3 major changes for the brokerage industry in the next 10 years:

- Fee structures change to account for "de-cumulation," i.e. distribution of wealth
- Globalization - wealth is increasingly created outside of the U.S.
- Entitlements - system needs to change or else there won't be money left to invest in anything.


http://blogs.forrester.com/marketing/2007/06/fidelity-invest.html
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2006
About Fidelity Brokerage Company

Fidelity Brokerage Company, the nation's largest brokerage firm by assets and accounts, with an estimated $1.7 trillion in assets under administration{as on Dec 31, 06), provides investment products, services and technology to 11.0 million retail accounts, nearly 3,450 registered investment advisors and more than 340 broker/dealers and their 78,000 brokers. As of December 31, 2006, it served 17.1 million client accounts, had 114 investor centers nationwide and executed 306,000 daily average commissionable trades.

Year end 2006 Results

BOSTON, January 24, 2007- Fidelity Investments today announced fourth-quarter and year-end 2006 results for Fidelity Brokerage Company, which showed that total client assets at the end of 2006 set a company record at nearly $1.7 trillion, an increase of 21 percent from one year ago.

Additionally, net new client assets, which include sales of Fidelity and non-Fidelity mutual funds and individual securities, were up 24 percent, rising to $44.2 billion in the fourth quarter of 2006, when compared to $35.7 billion in the fourth quarter of 2005.

Daily average commissionable trades increased to 313,048, up 14 percent from 275,075 in the fourth quarter of 2005. Additionally, total client accounts in the fourth quarter were 17.1 million, up 3 percent when compared to the same period in 2005.

"2006 was a year of record-breaking levels for all of our businesses, whether looking at assets, retail flows, daily average commissionable trades or total client accounts," said Ellyn A. McColgan, president, Fidelity Brokerage Company, the nation's largest brokerage firm by assets and accounts. "Three critical drivers of this success were Fidelity's emphasis on retirement services, which increased this past year's retirement flows by 40 percent, the creation of powerful, new alliances in our intermediary businesses and enhancements to our retail brokerage offering."

Full-Year Results

For the 12 months ended December 31, 2006, Fidelity Brokerage Company reported that daily average commissionable trades were 305,979, an increase of 19 percent from 256,723 during the prior year. Net new client assets were $164.4 billion, compared with $194.4 billion, a decrease of 15 percent, resulting from several large, one-time intermediary client implementations during 2005.

Retail Brokerage

Fidelity Personal Investments (FPI) launched several initiatives during 2006 that increased the competitiveness of its overall offering for individual investors and contributed to the business reaching a record $65 billion in retail flows, an increase of 50 percent over the prior year.

In the fourth quarter of 2006, FPI made significant enhancements across all its 529 Plans, including the new California 529, which now feature greater investment choice, lower fees and expenses, extensive no-cost guidance, and education for direct investors. The firm also launched the Trading Knowledge Center, an innovative online multimedia trading education tool designed to help a range of investors, from the experienced to the novice, make more informed trading decisions.

In 2006, FPI also made significant enhancements to its Open Bond Market online site and active trader1 application Wealth-Lab Pro®.

Fidelity continued its focus on retirement with the introduction of a cross-company guidance program-myPlanSM-designed to help individual investors break through the inertia associated with retirement planning and savings and take actionable steps towards achieving their financial goals.

Institutional Advisor

In the fourth quarter of 2006, Fidelity Registered Investment Advisor Group (FRIAG) worked together with Fidelity Personal Investments, the firm's retail brokerage business, to introduce Wealth Advisor SolutionsSM. As an extension of Fidelity's wealth management services, the program expands the opportunity for high-net-worth customers to establish relationships with qualified, independent registered investment advisor (RIA) clients of Fidelity.

FRIAG also added 453 new clients throughout the year. Fidelity Brokerage Company established an exclusive agreement with SunGard Transaction Network to integrate Fidelity's brokerage services with SunGard's transactional processing capabilities. The joint offering set a new standard in the bank trust and retirement plan administrator markets for an integrated trust-brokerage platform. The agreement helps Fidelity Brokerage Company deliver a fullservice solution that can help institutional clients drive operational efficiencies, while also helping them more effectively meet the evolving investment management needs of their clients.

Institutional Clearing

In the fourth quarter of 2006, National Financial continued its focus on delivering Integrated Brokerage SolutionsSM to its broker/dealer clients to help them drive growth, create operating efficiencies and manage risk. As a part of these efforts, National Financial announced the creation of Service Center, an innovative service technology delivered through its Streetscape® workstation. The new online resource offers broker/dealers service resolution, tracking and reporting capabilities designed to help them gain greater control and quicken the pace of client service. The firm also introduced an imaging platform which allows brokerage firms and their registered reps to more efficiently store, manage and view account documents.

In addition, National Financial conducted its second annual Broker Sentiment IndexSM, an extensive measurement of U.S. brokers' career satisfaction, designed to assist broker/dealer clients with their efforts to attract and retain the most talented brokers. In 2006, National Financial grew client assets by $104 billion (19.1 percent) to $649 billion.

As part of an ongoing effort to offer its brokerage company clients the advanced solutions needed to execute successful trading strategies, Fidelity Brokerage Company introduced CrossStreamSM, a sophisticated alternative trading system (ATS) in the fourth quarter. CrossStream anonymously matches brokerage clients' buy and sell orders against the diverse order flow of the entire Fidelity Brokerage Company. Fidelity Brokerage Company also established an alliance with JPMorgan Chase & Co. earlier in 2006 that enables Fidelity's retail and institutional brokerage clients to participate in equity IPO and follow-on issues offered by JP Morgan.

http://content.members.fidelity.com/Inside_Fidelity/fullStory/1,,7394,00.html
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APRIL 2005

Fidelity Investments' Internet operation has turned up the pressure on rivals such as Charles Schwab and even Merrill Lynch

Operating almost entirely online, it has added more than 1 million retail accounts in the past two years, giving it 9.9 million customers at the end of 2004. That's 40% more than Charles Schwab (SCH ) and 10% more than even Merrill Lynch (MER ).

Fidelity ended the year with $1.13 trillion in assets in its customers' brokerage accounts, muscling aside Schwab for the first time and closing in on Merrill's $1.36 trillion.

Fidelity's renewed assault on the industry's leaders began in October, 2002, when it tapped a 12-year company veteran, Ellyn McColgan, to run the brokerage unit. She trimmed costs, spent millions to upgrade the Web site for retail customers, and launched a series of ruthless price cuts. Fidelity now charges customers who make 120 trades a year just $8 a pop, vs. $14 for customers making 240 trades when she took over.

They spent a lot of money to upgrade their technology and improve customer service and after all that was in place they came up with the price cuts, the media campaign, the conference calls. Last year, it spent $700 million on technology alone at the brokerage unit.


The onslaught has other online brokers scrambling. In just two years, Schwab has lost almost 10% of its brokerage accounts, and E*trade Financial Corp. (ET ) 20% of its accounts. The losses have forced both to cut staff and close offices. The price cuts have been so harsh -- Schwab's average commission per trade fell 43% from 2002 to 2004 and continues to fall this year -- that some analysts say online brokerages are rapidly becoming unprofitable.

Most of McColgan's (since 2002)turnaround strategy came right from the playbook of Edward "Ned" Johnson III, who has run Fidelity since 1972. His philosophy: Spend and spend to improve technology and customer service, and emphasize market share first and profits later.

To attract frequent traders, McColgan purchased Wealth-Lab, a software program used to develop trading strategies, and added a dozen outside research sources to its Web site. The site not only offers reports from firms such as Lehman and Prudential Equity Group but also rates how accurate their past stock picks have been. McColgan also began adding branches around the country, opening 10 last year, including 6 within a half-mile of a Schwab office.

She also did something uncharacteristic of Fidelity: She spent more than $500 million on an acquisition spree. That beefed up its brokerage services for institutions and helped the firm gain ground on Bank of New York's Pershing, the market leader in terms of clients. Fidelity has vaulted over Goldman Sachs and Bear Stearns by adding clients such as Northern Trust, Washington Mutual, and Bank of America.

Now McColgan is focusing on Fidelity's failure to make much headway with financial advisers. In January she decided to replace the longtime head of the advisory business, Jay Lanigan, a 25-year Fidelity veteran. Over the previous two years, his operation had doubled the amount of assets it handled, to $137 billion. But Schwab had collected much more and now boasts $348 billion.

McColgan says she's looking to hire someone who will "bring a burst of energy" and close the "big fat lead" Schwab has built up. To catch Schwab, Fidelity will spend "a lot more" to boost its service for advisers, she adds. Recently, Fidelity introduced Web software -- for advisers -- that combines customer portfolio and contact information with trading and planning tools.

The battle to win over financial advisers and attract the assets of their clients is crucial to staying on top in the brokerage business. That's because each adviser brings in hundreds of accounts, and offering advice is the fastest-growing part of the investment industry. The long bear market and the host of scandals embroiling brokers and fund firms are driving the trend. And most advisers use a brokerage firm to maintain their customers' accounts and execute trades.

As Schwab has bulked up its own staff of advisers, Fidelity has been able to sign up some newer and smaller advisory firms that are worried about competing against Schwab for clients. But Fidelity is finding it much harder to get more established advisers to switch firms. To do so, the adviser must seek approval from each client, and many don't want to move.

Frank Armstrong, who runs a $300 million advisory company in Coconut Grove, Fla., has long used Schwab, but he's nervous about its growing in-house business. He's having Fidelity handle some of his clients' accounts, but many other clients resist switching. "Twice a year we tell them that there are better, more economical choices, but they want to stay," he says. Schwab says its success at attracting more business from advisers belies the notion that it is seen as a competitor.

Armstrong says Schwab has even tried to poach some of his customers when they visited a branch. Schwab says staffers are trained to steer customers to the most appropriate adviser, including one of the 329 independents who make up part of Schwab's outside network. Schwab referred more than $6 billion of business last year to these independent advisers. But fewer than 7% of the roughly 5,000 advisers who keep client assets at Schwab got referrals. Schwab says more want to join than it can accommodate.

This fight over financial advisers might determine which firm wins online brokerage supremacy. For now, Fidelity's vast resources and freedom from the tyranny of hitting quarterly earnings numbers are giving the mutual-fund giant an important edge.

http://www.businessweek.com/bwdaily/dnflash/apr2005/nf2005047_2278_db016.htm
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June 2005:


Fidelity Retirement Survey



Findings from the Fidelity Retirement Index issued Tuesday show that the typical American household is on track to replace approximately 59 percent of its projected pre-retirement income.

Since the index uses the median, or midpoint value from the findings, that means an equal number of respondents will do better or worse than 59 percent.

Fidelity recommends households be prepared to replace at least 85 percent of their pre-retirement income.

That means if a household earns $100,000 annually, it should be prepared to generate at least $85,000 a year during retirement.

Younger American workers aged 25 to 40 -- the least prepared age group in the survey -- are on track to replace about 55 percent of their pre-retirement earnings, the survey found.

Workers aged 41 to 54 are the best prepared and can expect to replace about 63 percent of their pre-retirement income, and those aged 55 and older trail slightly behind and are on track to replace about 62 percent.

"The harsh reality is that many Americans are woefully unprepared for retirement. They simply aren't saving anywhere near enough -- and many are not investing their retirement savings wisely," Fidelity Brokerage Company President Ellyn A. McColgan, told an audience

Bumping up personal savings
The Fidelity survey found that the typical American household has saved $18,750 for retirement and expects to cover the majority of retirement costs through Social Security and pension benefits.

But with rising retiree medical costs and longer anticipated life spans, Americans need to bump up their personal savings if they want to be ready for retirement, Fidelity said.

Some 16 percent of working Americans haven't even started saving for retirement, the survey found.

For those who have started saving, younger adults aged 25 to 40 typically put away $92 a month for retirement and have saved $9,000, while adults between the ages of 41 and 54 have saved more than $30,000. Their monthly contributions are double that of their younger counterparts at $187, according to the index.

Pre-retirees aged 55 and older typically have $60,000 in retirement savings and contribute $229 each month to that goal, according to the results of the survey.

McColgan also said companies need to play a larger role in demystifying the retirement planning process and encouraged retirement plan sponsors to provide education and guidance as well as automate enrollment process so workers can fully participate in company-sponsored plans.

More than 1,900 households with full-time workers above the age of 25 earning $20,000 or more a year were interviewed for the survey.

http://money.cnn.com/2005/06/07/retirement/fidelity_retirement/
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2003
A Conversation with Fidelity President Ellyn McColgan

February 12, 2003

She rises to the post from her previous role of president of Fidelity Financial Intermediary Services, succeeding Kevin Kelly. Her new role entails management of Fidelity's vast retail- and institutional-brokerage operations, as well as its direct mutual-fund sales. FBC is comprised of Fidelity Personal Investments, Fidelity Institutional Brokerage Group, and Brokerage Operations and Technology. Fidelity Investment's 2003 technology budget is $2 billion, which is unchanged from 2002.

What do you consider the largest challenge of your new position?


McColgan: Re-inspiring customers and our own employees about the market. Investors have been through a rough couple of years and we need to reach out to them with a message that is fresh and inspiring about the possibilities that are still available to people. But, it's not just about investors. It's about employees in the financial-services industry as well, including our advisers and representatives in our investor centers. Basically, everybody in financial services is pretty worn out after three years of a down cycle.


the Brokerage Operations and Technology Group. What are your top priorities for the Brokerage Operations and Technology Group?


McColgan: There are three priorities. One would be productivity improvements in the technology that supports the foundation of our business - in other words improving existing technology. The second is focusing on how to make the technology work even better for customer service. The third is to identify the top two or three opportunities for market innovation in technology.


Can I say just a couple of words about those three things? Let me start with productivity. We are a big company, we process lots of transactions, we have millions of customers, so the basic production systems that we run every day need to be maintained and run as cost effectively as possible. That's all the behind-the-scenes work that takes thousands of people to do. We never write any ink about it, if you will, but we spend a lot of time and energy there.


The second is customer service. Our customers deal with us in any number of different ways - all of which use technology. We need to make all of those customer-facing systems as user friendly as possible, and we need to have the standard of service for customers be the same across all of those platforms, no matter how you do business with us. That's much easier said than done.


The third thing that is very important to us as a company, with all the money that we spend on technology, is to identify those things that will truly separate us in the market for innovation. The most obvious example of that would be our ActiveTrader Pro Web site (a direct-access Web application for people who trade more than 36 times a year, developed in 2002).


You mentioned getting closer to your customers, what technology are you using to do that?


McColgan: The answered is layered. Customers either deal with us on the phone, through our Web site or in person. Our philosophy, over the years, has been to build the same capability across all those platforms - whether you came in through a branch or via the phone - you could do the same transactions.


What we find now, in fact, ten years later, after investing in all of these things, is that customers use the technologies for different things and we have to be smart enough to know what outlets are used for what types of transactions.


... Oh, I'll give you an example: Remember, years ago, when voice- response systems were considered the best technology around? What we did was build these really complicated trees so that you could go off and do any transaction you wanted to do. Well, now that would drive you crazy, you would never do that. Now about 80 to 90 percent of calls on voice response are for balance and quotes, so now we use voice response for balance and quotes. You know, so simplify it so it is easily accessible


What is Fidelity doing to comply with the new Patriot Act?


McColgan: Fidelity has established an Anti-Money Laundering Office to set consistent policy across all its business units. Among other things, we are: providing computer-based anti-money laundering training to all appropriate employees; performing due diligence concerning foreign financial institutions, including required certifications from foreign banks; and enhancing our suspicious-activity investigation and reporting capabilities, both for our own businesses and our correspondent broker/dealer clients.


Considering Fidelity's vast brokerage force, how does the firm monitor and archive e-mails and instant messages to comply with document-retention rules?


McColgan: We have systems in place for Fidelity's brokerage company to comply with document-retention rules. We also continually monitor and assess our technology and processes, and we continually upgrade and enhance our systems' capabilities to fulfill customer-service, operational and regulatory requirements.


How do you work with your technology group? Does the CIO or CTO report directly to you?


McColgan: Yes, the head of all brokerage technology reports directly to me and he manages the development across all of our businesses and all of our platforms. So, for example, whether it is regarding the Web or voice response or the mainframe, it all reports into one person and we do have a consolidated budget. There is another technology group for Fidelity.com, which is a separate tech group that does not report in to me, but we coordinate all Fidelity.com development with them.


Fidelity has been a leader in the wireless area in financial services, and now wireless has taken a little bit of a backseat, at least at most firms. What is your wireless vision for financial services - are you going to continue to support wireless or pull back from it?


McColgan: I think we are going to continue to invest in wireless as a technology of the future, but I think it is fair to say that it did not play out as we all thought that it would. Remember the advertisements showing investors running to and from meetings doing stock trades on their telephones? I don't think that is what has happened, but virtually everyone I know carries a wireless device of some sort for all kinds of communications purposes, whether or not they are doing trades on it is probably irrelevant.


The simple truth is that we are always in touch with each other and our customers, if we need to be, via all kinds of outlets, therefore I think wireless will always have potential. I think all of us who supported wireless early - as with all of the new technology in the last five years - we learned a lot, and it may evolve into something other than what we expected but I don't think the technology is going to go away.

http://www.financetech.com/showArticle.jhtml?articleID=14701970

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2003 January

McColgan Named Fidelity Brokerage President

A 20-year financial service industry veteran has been named president of Fidelity Brokerage Co.

Ellyn A. McColgan, who has been with Fidelity since 1990, was named to head the company, where she will manage Fidelity’s retail and institutional brokerage operations, and direct mutual fund sales. Fidelity Brokerage Company includes Fidelity Personal Investments, Fidelity Institutional Brokerage Group and Brokerage Operations and Technology, which manages more than 16 million accounts and holds nearly $700 billion in client assets.

http://www.fa-mag.com/past_issues.php?id_content=3&idPastIssue=67&show=fronline