Account openings at Fidelity Investments from registered investment advisers and their clients jumped 30% in the first quarter.
Account openings at Fidelity Investments from registered investment advisers and their clients jumped 30% in the first quarter.
“We had a nice run,” said Michael Durbin, president of the Boston-based fund giant's institutional wealth services division, which offers custody and brokerage services to about 3,500 RIAs and third-party retirement plan administrators.
Fidelity opened about 17,500 RIA accounts between January and March, up from 13,500 a year earlier, he said in an interview at Fidelity's “executive forum” for its RIA and broker-dealer-clearing clients.
The upswing continued last month, reflecting a small but growing trend of advisers' joining the independent channel from brokerage firms, as well as clients that advisers are winning from other financial firms, said spokesman Stephen Austin. Many of those clients open multiple accounts.
The phenomenon isn't unique to Fidelity. Accounts opened at the Pershing Advisor Solutions unit of The Bank of New York Mellon Corp. by RIA clients were up 18% in the first quarter from a year earlier.
“Fidelity's platform is probably a good barometer of what is happening across the custodial industry and the RIA part of the business,” said Mark Tibergien, president of Jersey City, N.J.-based Pershing Advisor Solutions LLC, which has 535 RIAs on its platforms.
Officials at The Charles Schwab Corp. of San Francisco, the largest custodian of independent advisers' assets, declined to discuss accounts added last quarter, but said that the number of end-client accounts placed by its 5,700 RIAs was 8% higher as of March 31 than last year at that time, at about 1.8 million.
While cheered by the account growth, which following a year in which most advisers suffered minor client attrition, Mr. Durbin and Mr. Tibergien said that it is far too early to celebrate.
“I'm still on sparkling water,” Mr. Tibergien said when asked if it was time to pop the champagne. “A positive trend is better than a negative one, but advisers and their clients have a lot of healing to go through, and there is still uncertainty in the marketplace.”
And other metrics, over and above market losses, continue to trouble custodian executives.
TROUBLED WATERS
Asset flow at Fidelity, or the net total of new assets added after subtracting those withdrawn, remained “slow” in the first quarter, Mr. Durbin said. The value of existing and new client accounts, the principal source of revenue for custodians and advisers alike, also continues to be scarred by the prolonged market decline across most asset classes.
Charles Goldman, president of Fidelity's institutional platforms for advisers and brokers, estimated in an interview that it could take five years for most portfolios to recover from the damage of the past 18 months or so. Many advisers may be operating at “close to break-even,” considering that U.S. equity markets fell 30% last year, while RIAs typically book profit margins of 25% to 30%, he said.
Fidelity executives and other custodians said that they haven't seen a rush by advisers to merge their practices or sell out to larger firms, despite much discussion. But Mr. Goldman said that he has no doubt that if the weak economy and poor markets continue, “some advisers will leave the business or sell their books over time.”
Searching for light in a landscape that he said is still blighted by regulatory and economic uncertainty, he told clients at the executive forum that though Fidelity's assets under management fell 22% in 2008, to $1.25 trillion, the drop was less severe than the decline in the Standard & Poor's 500 stock index, which fell 38.5% during the same period.
Pershing spokeswoman Barbara Gallo made a similar point in noting that its adviser assets fell just about 6% during the first quarter to about $56 billion.
“We're doing incredibly well in the crappy environment we are in,” Mr. Goldman said, while conceding that businesses can't live on relative performance.
The value of adviser and third party administrator assets in custody throughout Fidelity at the end of March was down about 14% to less than $300 billion, from about $350 billion a year earlier, a spokesman said. Fidelity also suffered a decline in the number of advisers who use the firm's custody services for their assets. Its roster of about 3,500 RIAs and TPAs was off almost 8% at the end of the first quarter, from about 3,800 a year earlier, he said.
Schwab and Pershing, by contrast, saw rises of 5.5% and 5%, respectively, in their RIA totals, to 5,700 and 535.
A spokeswoman for Omaha, Neb.-based TD Ameritrade Holding Corp. didn't provide statistics for the firm as of press time.
In another sign of deteriorating value Schwab said that net new assets from its burgeoning adviser roster fell in the first quarter 52% from a year earlier, to $10 billion, while total assets from the San Francisco-based firm's RIA were down 20% to $457 billion.
Total assets at Pershing as of March 31 were down almost 17% from a year earlier to $56 billion, a spokeswoman said.
Perhaps the best news, custodial executives said, is that advisers who have been struggling with angry clients, long hours and expense cuts in their own businesses appear — anecdotally at least — to have turned the corner.
“Clients are starting to feel better after taking a number of tough decisions and are focusing again on growth. It's quite different from about six months ago,” said Mr. Durbin, who joined Fidelity in February from the retail-brokerage division of New York-based Morgan Stanley.
“A lot of the panic seems to have left,” Mr. Tibergien said. “There is now a more controlled and measured reaction to events.”
Mr. Goldman, who joined Fidelity in January after running Schwab's RIA business, cautioned, however, that the landscape for financial services firms remains distressed. He offered a sobering assessment of his own company's profile at the forum held in Orlando, Fla., April 29 through May 1.
Like advisers who have been winnowing costs and even culling low-margin clients, Fidelity since November cut about 3,400 jobs and last month announced a salary freeze for many employees along with a warning that it expects to cut bonuses and revenue sharing this year.
The privately held company hasn't disclosed its first-quarter metrics to date, but Mr. Goldman said that operating income last year fell 18% from 2007 to $2.36 billion on a 3.8% drop in revenue.
“We got too fat, [with] too many people and too much organizational structure,” he told about 400 clients at the executive forum. “We're transforming ourselves to drive efficiency and effectiveness.”
E-mail Jed Horowitz at jhorowitz@investmentnews.com.
