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Rating:Fidelity Steps up Challenge to Schwab Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, April 07, 2005

Fidelity Steps up Challenge to Schwab

by: Theresa Sim

Fidelity's sleeping giant has awoken. The firm's online brokerage operation surpassed Charles Schwab for the first time in total assets, racking up $1.13 trillion at the end of the year, reports BusinessWeek.

Fidelity had 9.9 million customers at the year's end, compared to approximately 7 million for Schwab and 9 million for Merrill Lynch.

The next area where the two will butt heads will be the independent financial advisor business. According to BusinessWeek, Schwab is still much more successful catering to FAs.

Fidelity hopes to snatch away advisors who are unhappy with Schwab's practice of steering clients to its in-house advisors, Ellyn McColgan , who heads Fidelity brokerage unit, told BusinessWeek.

And McColgan has already taken steps to revamp this business. In January, she fired Jay Lanigan, who headed the RIA group at Fidelity, and is still looking for someone who will "bring a burst of energy" and close in on Schwab's "big fat lead" in the advisor area, McColgan told BusinessWeek. Expect serious cash to be spent in the area, said McColgan.

Because Fidelity is a private firm, McColgan can afford to throw cash towards the efforts. According to BusinessWeek, Fidelity spent $700 million in technology for the brokerage. Fidelity's brokerage also benefits from asset management fees from its clients. While approximately half of Fidelity's brokerage assets are invested in Fidelity's funds, only 1/8th of Schwab's brokerage assets are invested in proprietary funds. Fidelity also makes more on each dollar of brokerage assets -- charging an average of 0.7 percent to 0.8 percent versus Schwab's 0.2 percent to 0.3 percent.

Schwab's not doing shabbily, however. The brokerage hit its highest profit margin in five years in the fourth quarter of 2004. "We have our own punch list of what we think are great ideas, [rather] than responding to what the competition does," Michelle M. Swenson, senior vice president of Schwab's advisory broker group, told BusinessWeek.  

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