FIDELITY OUT TO GRAB MORE OF SCHWAB’S ADVISER BIZ: $35 MILLION INCLUDES BEEFIER BROKERAGE UNIT

Fidelity Investments is taking new steps to try and grab market share in the adviser business from rival Charles Schwab Corp.

The Boston-based mutual fund giant has budgeted about $35 million for its Fidelity Investment Advisor Group this year, a mighty 250% increase from 1997, when it poured $10 milllion into the five-year-old group that courts advisers.

A portion of that money will be spent to improve and market the group’s brokerage capabilities — a segment that is becoming increasingly popular, especially among large clients, says Ray Marcinowski, president of the division. It has $27.1 billion in assets under management.

“Being in a bull market, everyone sees the individual stock that has had phenomenal success and they want to take part in that,” says Mr. Marcinowski. “The sale of individual equities is the fastest growing part of our business.”

This week, Fidelity will release the results of a survey of 421 registered investment advisers. That survey concludes that the bigger the investment adviser, the bigger the appetite for stocks.

The drive to gain more brokerage clients is a central theme at Fidelity, which manages more than $675 billion in mutual fund assets. For the third time in less than a year, the nation’s second-largest discount brokerage is lowering its fees for customers who trade frequently over the Internet. The new pricing schedule is effective July 17.

While Fidelity is the nation’s second-largest discount brokerage, it is clearly the underdog in the battle for adviser assets. Schwab holds a whopping 77.5% of the $160 billion that financial advisers hold with service agents, compared to Fidelity’s 17.2%. Datalynx Inc. has 3.4%, Jack White & Co. 2.7% and Waterhouse Securities 2%, according to data compiled by InvestmentNews. Schwab, which has been courting advisers since 1988, also boasts relationships with 5,300 financial advisers — compared to Fidelity’s 2,500.

Fidelity is making strides, however. Between 1993 and 1997, the adviser group’s assets have grown at an annualized rate of 55%. The number of equity trades by advisers reached 130,871 last year, up from 69,017 the year before and 11,209 in 1993.

The brokerage business is clearly an area where Fidelity hopes to gain even more ground — particularly among big advisers, which are far more profitable than smaller ones. It also recently formed a 14-member advisory council, made up of working advisers, which is intended to keep Fidelity aware of issues affecting the industry. The company is also beefing up Internet-related services for advisers.

Big advisers pick stocks

The study coming out this week shows that 62% of advisers with more than $100 million in assets have more than 75% of their clients’ assets invested in individual securities. By comparison, only 35% of advisers with between $15 million and $100 million in assets, and 30% of firms with less than $15 million in assets, had 75% of their clients’ assets invested in stocks and bonds.

Conversely, the study finds that advisers with fewer assets under management favor mutual funds. Fifty-four percent of those with less than $15 million in assets maintained at least three-quarters of those assets in mutual funds, compared to 41% for the midsize group and 28% for the large group.

Of the 421 registered investment advisers surveyed by Fidelity, 49% had assets of more than $100 million. Another 40% fell into the $15 million-to-$100 million category, while 11% had less than $15 million in assets.

For advisers, the debate on whether to invest in individual securities or in mutual funds seems more a question of investment style than of size. George Kinder, an adviser in Cambridge, Mass., with more than $50 million is discretionary assets, favors mutual funds for their track record. “It almost seems almost arrogant to position yourself as this great stock picker,” he says. “If someone was such a great stock picker, don’t you think Fidelity would have picked them up?”

not a unique service

Esther M. Berger, of Berger & Associates in Beverly Hills, Calif., sees things quite differently. “To me, an investment adviser is paid to provide a unique service to his or her clients. Picking a good mutual fund is not a unique service. A lot of people can do that.”