MutualFundWire.com: What's Ned's Next Step at Fidelity?

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Friday, January 22, 2010

What's Ned's Next Step at Fidelity?

Has the Boston fund industry developed cabin fever early this year? With the Pats making an early exit from the playoffs and the Sox blowing the hot stove season it should come as no surprise that the dishiest trade talk in Beantown revolves around the odds of the front office team at 82 Devonshire Street making a play for a star on the team a short walk away at One Post Office Square.

For those of you who don't make regular stops at Bakey's, please let me translate: Will Fidelity, or more specifically Ned Johnson, be open to tapping one of his many ex-employees at Putnam as his anointed successor? And, how will the Desmarais family react if that longshot passes the post first?

The speculation on Ned Johnson's succession plans at Fidelity has burned hot and cold over the past two decades. A year ago, for instance, the speculation was over whether Rodger Lawson would stay on. We heard then that he would not.

This week those rumors became official when Rodger told reporters at a special meeting in Boston on Wednesday that he would be resigning at the end of March. That news has turned the burner on the "succession speculation" back to high and the pot is once again at a full boil.

The WSJ, of course, hinted at the usual suspects: Abby and asset management chief Jacques Perold.

While Abby -- Fidelity's largest shareholder -- can never be ruled out as Ned's successor, there is a widespread belief among sources who know Fidelity well that Abby is not ready nor possibly willing to slide over to become the CEO. Those who want the skinny on Abby's chances should take a peek at Steve Syre's column in today's Boston Globe (what ever happened with Sam Bodman?).

Meanwhile, Perold lacks experience in the defined contribution industry. That lack of experience would be a gaping hole in the resume of any Fidelity CEO.

Lawson himself hinted to the reporters that Fidelity needs a chief who knows more than just asset management when he suggested that the firm could be split into multiple businesses. The logical split would be for Fidelity to carve out its defined contribution and 401(k) recordkeeping operations -- the largest in the world. That carve-out would allow Fidelity to sell those services on an outsourced basis without giving rival money managers the heebie jeebies. (Fidelity has already taken a small step down this path through its alliance with SunGard and the STN platform).

Assuming the 401(k) angle is as important to Ned as I think it is to Fidelity, Ned has two players on his bench besides Abby (yes, she has been the titular head of the retirement business for a few years now). Those two are Kathy Murphy and Michael Wilens.

Murphy is a long-time veteran of ING, where she pulled the trigger on the acquisition of CitiStreet that made ING Retirement the second largest DC plan provider, a move which she followed with her jump to Fidelity. She also spent a decade and a half at Aetna, including stints as general counsel and chief compliance officer of Aetna Financial Services, prior to ING's purchase of the company. Sources with ties inside 82 Devonshire St also say that Murphy has an ally in Abby and that one plan could be Murphy taking over as CEO in the next year while Abby becomes chairman.

Of course, Ned is famous for creating competition, and why would his succession be any different? Late last year he moved Wilens from head of the asset management post (the job Perold now holds) to head the client service side of the Fidelity retirement empire. The new job should quickly get Wilens up to speed on the retirement business and burnish his credentials as a possible Ned successor.

Last year Fidelity lost its Ford Motors relationship to ACS; we assume Wilens will be tested on whether something like that happens again this year.

Of course, Ned could go a different way. Yesterday afternoon, InvestmentNews also caught on that 401(k) experience would be a good thing for Fidelity's next chief to have. It dropped the name of Putnam's Jeff Carney as a dark horse candidate. Carney is heading Putnam's retirement push under CEO Bob Reynolds'. Before joining Putnam he had been tasked at Bank of America to build its retirement business, a mandate that included shopping for a recordkeeping business for the bank.

Carney, who was known as one of the most ambitious of the ambitious "Bob's Boys" while working for Reynolds at Fidelity, put in his time as chief of Fidelity FIRSCo before sending around his resume after Reynolds' abrupt departure. How ambitious is Carney? A quick example: One ex-Schwabbie relates that when Carney interviewed to become the head of the retirement division at a major financial services firm on the West Coast, he asked the interviewer (who was the CEO-heir apparent) if he would be in line to be the next CEO if he took the job.

So Carney could be a logical choice.

Yet, why would the Johnsons bring back one of Bob's Boys when they could offer the job to Bob Reynolds himself?

"Hold on," say Fidelity veterans when asked about that possibility, "Bob would never go back to Fidelity -- especially if Abby is still there."

Well, what if Reynolds did return to Fidelity? He knows the Fido retirement clients better than anyone else (do you think Ford would have walked if Bob was still there?). He would be the triumphant prodigal son, a role seemingly perfectly suited to his mien. He would also be able to use his skills in identifying talent to build the next generation of leadership at Fidelity, something that has not happened during the past three years.

The big catch would be that Abby would have to give Reynolds space, either as a near silent chairperson or a very quiet lead shareholder. Could that work? Maybe. And maybe we will get a chance to see.

Whatever happens, with his eightieth birthday soon approaching, Ned will not be able to just lean back in his chair, close his eyes and ask for the problem to be gone when he reopens them.

Printed from: MFWire.com/story.asp?s=23981

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