Analysis: A New Direction for Fidelity?

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Fidelity Investments' latest management realignment could point the mutual fund giant toward becoming more of a general financial services firm, one that offers tax advice, estate planning and even health insurance alongside its traditional offerings in investment portfolio management.

Last Thursday, Fidelity elevated Ellyn A. McColgan to president of Distribution and Operations. She will oversee several Fidelity subsidiaries that sell funds both directly to individuals and through intermediaries such as life insurance companies and other institutions. She'll command some 19,000 people - nearly half of Fidelity's 42,000-strong work force, and almost twice the number previously under her authority, according to The Wall Street Journal.

The move strengthens speculation that McColgan is being positioned as a successor to Edward C. (Ned) Johnson III, the 77-year old chairman and chief executive of the family-controlled company.

McColgan joined Boston-based Fidelity in 1990 and has been president of Fidelity Brokerage Company since 2002. While she'll be replaced in that role, McColgan will continue to oversee the brokerage unit. Last year, Fortune magazine ranked her among the 50 most powerful women in American business.

Fidelity says McColgan will now "share distribution leadership" with Johnson's daughter Abigail, a long-time Fidelity manager and one-time heir apparent. In recent years, Abigail Johnson has suffered a string of setbacks. The most notable came in May 2005, when she was eased from the top position at the flagship money management division, Fidelity Management & Research Co. As a result, Abigail's prospects of eventually running the whole company are widely viewed as on the wane.

Hints of Direction

Thanks to an exceptionally nimble management culture, Fidelity has a longstanding reputation for both setting and following industry trends. That would likely continue if McColgan reaches the top job.

In a speech at the Securities Industry Association's 2005 annual meeting, McColgan outlined where she believes the financial services industry is headed. Her remarks indicate she might look to:

Further broaden Fidelity's fixed-income product line, which was expanded and upgraded during the 1990s

Maintain or even accelerate Fidelity's heavy pace of investing in technology for customer service

Invade financial planners' traditional turf through offering tax and estate planning services

Eventually move toward selling health and long-term care insurance.

In that November 2005 speech, McColgan said the critical challenge facing financial services firms is helping Baby Boomers manage the transition from accumulating wealth to withdrawing funds through retirement income streams that will support them for the rest of their lives.

Beyond encouraging continued savings and investment in vehicles like mutual funds and defined-contribution retirement accounts, she said then, "We need to develop better income-producing products that will serve as effective hedges against inflation, better insurance products to guard against potentially devastating health calamities, and better tax strategies to preserve wealth."

In addition, she said the industry must give future retirees the means to create individualized "lifetime income plans," as well as help customers with wills and estates, and with integrating real estate into retirement plans.

McColgan's vision for Fidelity is illustrated by a company-wide initiative called Fidelity Retirement Income Advantage (FRIA). Formally launched in 2004, the program's development began in 2002, the year she took over Fidelity Brokerage Co. McColgan has described FRIA as a comprehensive approach to helping retirement savers plan and act to turn their life savings into sources of lifelong income they can rely on and not outlive. It includes new planning services and online tools that help customers prepare lifetime income plans, either on their own or in consultation with Fidelity advisors.

In the meantime, Fidelity is likely to continue beefing up fixed-income offerings and retirement-oriented lifecycle funds, whose asset mix adjusts with an investor's age over time. And the firm can be expected to invest whatever is needed to maintain its reputation as a leader in systems that let customers quickly retrieve data and participate in managing their own accounts.

Does Fidelity's management change portend wider changes in the financial industry? Tell us what you think by posting a comment below.

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