Fidelity quietly abandons HybridOne program

After rolling out with great fanfare its HybridOne brand for dually registered advisers in June 2008, Fidelity Institutional Wealth Services quietly has stopped marketing its service as a distinct offering. At the time of the rollout, the advisory industry was gearing up to handle the anticipated wave of breakaway brokers who were ex-pected to continue doing significant business in securities within their new advisory firms. Indeed, six months after the launch of the offering, Fidelity claimed to have garnered 104 hybrid clients with $13 billion of assets. But since then, Fidelity has gone silent on HybridOne; links to information about the program on Fidelity's website no longer work. “We chose to move away from a separate brand,” said Ronald Fiske Jr., executive vice president of products for Fidelity's custody and clearing businesses, and head of Hybrid One. HybridOne was simply a “branding scheme” to get advisers into Fidelity's Institutional Wealth Services custody business or its National Financial Services LLC clearing unit, said Doug Dannemiller, a senior analyst at Aite Group LLC who worked at National Financial before leaving in November 2008. The HybridOne brand “wasn't necessary,” he said. “HybridOne didn't really have customers — the customers either went to IWS or National Financial, or both.” Even without the HybridOne brand, handling hybrids' business “is the core” of what Fidelity does, said Mr. Fiske, who noted that “the vast majority of assets” on the National Financial platform is a mix of securities and advisory accounts. Together, National Financial and IWS control $960 billion in assets. “I would view [HybridOne] as a distraction for [Fidelity], because they are at the top of the list for those going RIA,” said Chris Winn, a managing principal and co-founder of MainStay Consulting Group LLC, who serves advisers who become independent. “They did better with the RIA-friendly broker-dealer referral arrangement, which is where they were.” Was HybridOne a distraction? “We felt we created a category,” Mr. Fiske said. “It's interesting how many people rallied to the concept” of a hybrid adviser. “I think the execution came up short,” said Christopher Lamb, a principal at Old Mission Investment Co. LLC, which has about $300 million in assets in Fidelity's custody. “It didn't feel like it was one system ... and if you're still using two systems, why bother?” asked Mr. Lamb, who looked into HybridOne but didn't use it. Since his firm generates only about 1% of its revenue from commissions, an integrated platform wasn't crucial for his main advisory business, which Fidelity handles well, he said. The HybridOne brand also may have fallen victim to turnover in Fidelity's management ranks. Last month, Charles Goldman, president of Fidelity's institutional platforms, left the firm after just over a year. Mr. Goldman, who formerly ran The Charles Schwab Corp.'s RIA custody business, was brought in to run Fidelity's custody and correspondent-clearing businesses with a goal of better integrating the two units. Also departing last month were former Fidelity president Rodger Lawson and Joe Giordano, who headed relationship management duties for Fidelity's custody unit. Meanwhile, Pershing Advisor Solutions LLC and LPL Financial, two of the most prominent competitors in the hybrid arena, continue to market their hybrid offerings as distinct services. Pershing in April 2009 rolled out its RIA Complete service, which targets broker-dealers who want to retain their registered representatives' advisory business. The firm declined to disclose assets or advisers within that program. LPL's Hybrid RIA Platform, launched near the end of 2008, held $7.3 billion in assets by the end of last year. LPL and Pershing have more-unified systems than Fidelity's, Mr. Dannemiller said. But no firm has a truly integrated hybrid platform, said Richard Gill, vice president of Focus Financial Partners LLC, an aggregator that has several hybrid shops working with Fidelity, but not under the HybridOne program. “Nobody's got it perfectly nailed down with all the operational issues involved,” he said. Larger hybrid shops usually craft a custom operation rather than use a packaged solution, Mr. Gill said. Hybrid advisers are still seen as a big growth opportunity. Cerulli Associates Inc. counted 14,769 dually registered advisers who were affiliated with an independent broker-dealer as of year-end 2008, the most recent data available. These hybrids had average assets under management of $41.9 million — an asset base second only to wirehouse brokers. Cerulli estimates that hybrid advisers will account for 11.6% of all advisers by 2012, up from 4.8% in 2008. E-mail Dan Jamieson at djamieson@investmentnews.com.