Fidelity plans to waive commissions on new RIA assets, cut tech fees

Fidelity Investments, responding to The Charles Schwab Corp.'s June announcement of price reductions for independent advisers and their clients, is rolling out a competing program with a few extra twists.

Fidelity Investments, responding to The Charles Schwab Corp.’s June announcement of price reductions for independent advisers and their clients, is rolling out a competing program with a few extra twists.

As of Oct. 1, Fidelity will eliminate online commissions on equity and option trades for new accounts introduced by registered investment advisers and reimburse account transfer fees that clients pay to leave their former financial services providers.

Fidelity also said last week —- three days before the start of Schwab’s annual Impact conference for RIAs — that it will waive annual position or custody fees for new alternative-investment accounts, personal-trust accounts and some separately managed accounts, and reduce by as much as 50% the annual licensing fee for advisers who use the Advent Software Inc. multicustodial portfolio performance platform that resides on Fidelity’s Wealth Central platform.

The waivers on commissions and investment products will run through June 30 on all new-to-Fidelity relationships introduced by RIAs. The rate card reduction on the Advent application will cover annual fees for 2010 and 2011.

Fidelity also said that for an unlimited time it will reduce by 10% to 35% the annual service fee paid by users of the Oracle customer relationship management application on Wealth Central.

“This speaks to how competitive the marketplace is now,” said Paul Murphy, national sales director at Spire Investment Partners LLC, an RIA and broker-dealer that manages almost $1.5 billion in assets and uses Fidelity as its primary custodian and clearing broker.

“We are in a business of pennies and nickels and dimes,” Mr. Murphy said. “Everything helps, especially in this environment.”

Although waivers of already-low commissions may not be vital to advisers who focus more on long-horizon wealth management services than on active trade positioning, the discounts on the Advent application can provide significant savings. One adviser at a firm that manages more than $1 billion said that portfolio management fees can run more than $150,000 a year.

Michael Durbin, president of Fidelity’s institutional wealth services unit for RIAs, wouldn’t discuss how much fee revenue the firm expects to waive during the promotion, but said the program’s goal is to win market share from advisers who have become more discerning about evaluating custodial quality and services. “We give our clients a lot of credit in deciding where to [place] their assets,” he said in a phone interview, “and we want to make sure that price points are not a barrier.”

Most large advisers use multiple custodians and will direct newly acquired client assets to the best price offering if servicing and technology are relatively equal, said Timothy Welsh, founder of Nexus Strategy LLC, a consultant to wealth management firms.

“Everything is won at the point of sale,” said Mr. Welsh, a former marketing employee at Schwab’s RIA unit. “In this economy, as Cash for Clunkers proved, a recessionary model resonates, even with high-net-worth consumers and their advisers.”

Fidelity has long trailed Schwab, the pioneer of custody for independent advisers, by number of advisers and assets under management, and its market share may have de-creased last year, estimates Robert Ellis, a principal at Novarica, a wealth management consultant. At the end of 2008, Schwab had $477 billion under custody from about 6,000 RIAs, compared with $290 billion from 3,500 advisers at Fidelity, according to Aite Group LLC.

Schwab announced in late June that it would waive commissions over the next 12 months on online stock trades and reimburse account transfer charges for accounts brought in by advisers through Dec. 31. It also is waiving the 2010 license fee it charges for its proprietary portfolio management software.

Schwab as of last Wednesday had attracted 37,000 new accounts from advisers and waived or reimbursed more than $2.1 million in commissions and transfer-of-asset fees since its Make the Move promotion was introduced July 1, according to Alison Wertheim, a company spokeswoman.

“Innovation by industry leaders is often swiftly replicated,” she said in a statement. “The moves we announced in June were designed to help advisers fuel their growth and efficiency, and we remain squarely focused on their needs going forward, not on the moves of our competitors.”

In playing catch-up, Fidelity has the advantage of being able to add sweeteners. Its waivers will apply to any account introduced until the program ends June 30, meaning that one opened May 31 will still qualify for a month’s worth of free trading. (The program’s introduction, of course, trails Schwab’s by three months, meaning new accounts introduced on Fidelity’s launch date of Oct. 1 will enjoy nine months of waivers, compared with 12 months for one introduced at Schwab on July 1.)

Unlike Schwab, Fidelity is waiving commissions for options as well as stocks. Schwab also hasn’t waived fees broadly for new personal-trust accounts or new separately managed account programs (both firms price those fees based on the overall relationship with the adviser).

Fidelity also is taking a slap at Schwab’s controversial decision this year to end acceptance of hedge fund positions and other alternative investments from advisers. Fidelity restricts custody of some private placements, offshore promissory notes and other illiquid investments, particularly from small advisers, but said it generally will waive its $50-per-position fee for new alternative-investment accounts introduced through June 30.

Some rivals say the promotions from Schwab and Fidelity merely formalize the “relationship-based” pricing adjustments that custodians make every day to win assets from advisers.

“If somebody’s feeling some pain over the cost of software and we can do something about it, we’ll do it,” said J. Thomas Bradley Jr., president of TD Ameritrade Holding Corp.’s RIA custody arm. “Our salespeople generally have control over this.”

RIAs and their clients are generally not motivated by commission waivers, he added, but the firm will be glad to let them participate in promotions for free golf drivers or other trading inducements offered by TD Ameritrade’s retail brokerage if they know enough to ask, he said.

Neither TD Ameritrade nor Pershing Advisor Solutions LLC feels the need at the moment to roll out formalized fee reduction or waiver programs to vie with Schwab or Fidelity. “We are not losing any business to our competitor as a result of this,” Mr. Bradley said, “and I don’t think we will with others.”

Pershing spokesman Michael Geller said the firm’s pricing will remain competitive with other custodians’ without a need for promotions.

“The terms of our pricing are dependent on the relationships that we have with each of our customers,” he wrote in an e-mail. “Delivering superior business solutions, excellent service quality and an expansive array of practice management capabilities helps our customers build a more profitable business and create real value — a concept which is not lost among serious, growth-minded RIAs.”

Mr. Welsh, however, thinks competitors have been surprised by the success of the Schwab promotion and that it triggered the Fidelity response.

The firm, which last year hired former Schwab Institutional head Charles Goldman to oversee its RIA and correspondent-clearing platforms, also is trying to induce more advisers to use the high-end Advent portfolio management system in Wealth Central to steal some thunder from Schwab’s Impact conference.

“They always try to make headlines before Impact,” he said. The conference, which attracts more than 1,000 attendees, was scheduled to be launched Sunday night with appearances by BlackRock Inc. chief executive Laurence Fink and Mohamed El-Erian, CEO of Pacific Investment Management Co. LLC.

E-mail Jed Horowitz at [email protected].