Fidelity is known primarily as a manager of mutual funds and a broker-dealer, but it also has a sizeable servicing business too. The firm says it has $3.7 trillion in assets under administration, which includes $1.6 trillion in managed assets.
Those numbers are about to get much larger, if Fidelity has its way. Fidelity Institutional Wealth Services has expanded its traditional mutual fund custody business to cover equities, fixed income and money market funds with same-day settlement as well. The firm says it is ramping up its custody offering for trust companies and bank trust departments so clients can minimize their custodial relationships by consolidating with Fidelity.
Fidelity worked with SunGard to develop an integrated platform combining bank services with brokerage capabilities along with consolidated custody processing across asset types, money market funds with same-day settlement, daily net settlement wire and verification, support for individual securities and expanded trading capabilities with Fidelity Capital Markets.
Global Custodian spoke to Meg Kelleher, executive vice president, Fidelity Institutional Wealth Services, about the expanded offering.
Tell me about Fidelitys expanded custody business. How does this differ from the service you have offered historically?
Fidelity Institutional Wealth Services has been servicing bank clients for over ten years, but primarily what weve been doing is supporting these as a provider of mutual fund custody and clearing services. Our Institutional Funds Network provides access to over 500 fund families and 18,000 individual CUSIPs. Weve built a great business around that, but it was just for mutual funds. Over the past few years, what weve been hearing from clients is the need for them to be as efficient as possible, and one way we felt we could help is if we could support their pure custody businessequities, fixed income, ETFs, etc.reducing the amount of third-party custodians they have to work with. What we are doing today is an extension of the value we are providing these banks on the mutual fund side and expanding it into different asset classes, allowing them to optimize for greater efficiency.
Tell me a bit about the technology investments Fidelity has made to support the new capabilities.
These clients are extremely important to us, and the market itself is very large. We feel we have a tremendous opportunity with our current clients, and the markets are significant, and therefore warranted the investment that Fidelity made. One of the key areas of investment is the integration we built with our clients underlying trust accounting and record-keeping systems. Our clients are utilizing various accounting systems, and our platform makes their daily operation more efficient. Weve done a lot of integration with the underlying systems to create as much straight-through processing as possible, and thats what some of the investment has gone to.
Did you build the platform or buy it?
Our platform leverages the custodial infrastructure of Fidelity with some unique technology development to specifically address the needs of our bank trust and record-keeping clients.
Do you plan to service only trust companies and trustee departments at banks or eventually other institutions as well, such as insurance companies or institutional investors?
In the work that Im responsible for, we cover banks as well as third-party administrators or retirement providers, so were working with insurance companies today for their retirement business on the mutual fund side. So a big insurance company might have a retirement business where they serve as record-keeper. Fidelity can offer full support for their mutual fund custody and clearing needs.
You mentioned institutional investors; I dont see that quite as much, but we do provide mutual fund custody for TPAs [third-party administrators] and insurance companies that have retirement businesses. We also provide services for the bank employee benefit business, for banks that have a retirement offering.
What is Fidelitys ambition in the custody business: to become a global custodian of the likes of BNY Mellon or State Street or J.P. Morgan, or to be more of a niche provider? How will Fidelity differentiate itself in the space what will it do differently than the incumbents?
We are keenly focused on providing value to the clients we have today and listening to what they need. The expanded capabilities around custody of additional asset classes are in response to the demand weve been hearing from our clients. Well continue listening to our clients and respond accordingly.
As existing custodians are grappling with consolidation in the industry as a result of slimmer margins on FX, regulatory burdens and the like, how does Fidelity plan to thrive in this environment? What makes this an attractive business to the firm, particularly now?
It takes a company with the size and skill of Fidelity to pull something like this together. To your point, there are a lot of other firms who are seeing more consolidation. I think Fidelity is in a unique position based on our size, scale and brand to be able to respond positively to what clients are looking for.
The reason why this market is appealing is because, one, we have a great installed base of clients, and two, the market is large. There are about $14 trillion in assets serviced by banks and trust companies, so there is a very significant opportunity for new business, and theres a great installed client base that we want to be responsive to.
Fidelity seems to be ramping up its securities services. I know the firm has also recently released a securities lending pricing product that has gotten quite a bit of attention. While it is operated out of different division, Fidelity Prime Services, are these new services part of a greater plan at Fidelity to expand the firms securities services offering?
Id go back to how I answered a couple of your other questions, which is that it really is in response to both the needs of our current clients and the opportunity to service additional clients.
Christopher Gohlke