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Thursday, February 16, 2017

Fidelity Dishes Out a Serving of Rationalization-Lite

Reported by Katy Golvala

Fidelity is setting up a few additional hurdles for new and existing funds on its platform.

Carolyn Clancy
Fidelity Investments
EVP, FundsNetwork
The firm's recent rationalization initiatives pale in comparison to those launched by their wirehouse counterparts, but several fundsters say they hint at larger industry changes to come.

According to fund firm execs, an advisor will now need to issue a $1.5 million order before a fund can be included on the Fidelity's platform, regardless of whether the asset manager has an existing selling agreement. The firm will also re-evaluate funds that don't hit $1.5 million in assets on the platform after one year.

"After decades of adding products onto the platform, there's a time where you need to streamline and scale things," says Carolyn Clancy, EVP of FundsNetwork at Fidelity Investments.

Clancy estimates that Fidelity has nearly 24,000 CUSIPs on the platform.

She didn't dive into details on the streamlining efforts, and a statement on Fidelity's website simply reads, "Effective immediately, Fidelity will only add a new product from your firm if there is confirmed client demand."

One exec highlights the blow this announcement deals to small firms, since RIA custodians have served as a haven of sorts for small companies.

"This is very difficult for small fund firms ... We're evaluating other distribution avenues," he says.

Among RIA custodians, Fidelity was previously known for letting all funds on its platform, and Schwab was known for having stricter standards. Now, it's the opposite.

"It literally reverted and flipped like six months ago," says an exec at a medium-sized fund firm.

This marks the first rationalization initiative by a fund supermarket, and now the question becomes if and when the others will follow suit.

Whisperings of change are around every corner—on January 1, LPL announced that all funds seeking approval for the platform, even from firms with existing selling agreements, will need a one-year track record and $25 million in assets.

As one exec puts it, "Every platform looks like they're trying to clean up their CUSIPs."

Clancy and the Fidelity team are keeping busy—on February 1, they launched an iNTF platform, which is a no transaction fee platform featuring institutional shares. 

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