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Advisors can tolerate Goldman departure from Fidelity if service doesn't suffer

Fidelity says to expect no change in service approach because of executive changes

Thursday, January 28, 2010 – 4:25 AM by Brooke Southall
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Charles Goldman still embodies a service ethic for many advisors

RIA clients of Fidelity Institutional Wealth Services fall mostly into two camps when it comes to Charles Goldman leaving the company: many who knew him and liked him and those who never got to know him well enough to develop much of an opinion.

Despite these differences, they all share one concern about his departure – that it could somehow lead to a loss of momentum in Fidelity’s drive to improve its service.

“It’s a bit unsettling, and I’m sure all Fidelity clients will be watching closely to ensure that Fidelity remains committed to the service improvements and the RIA business,” says one advisor who asked not to be named.

A day after Goldman’s planned departure in March became public (RIABiz broke the story Tuesday evening), Fidelity is embracing Goldman’s commitment to improving service, including a rollout of team-based service to all its RIAs.

Fidelity has no plans to diverge from its established service plan, according to its spokesman, Vin Loporchio.

No change

RIAs should expect “no change in the approach, focus or prioritization of the service model,” he says.

Goldman’s platform from day one at Fidelity was that he would start closing the seemingly insuperable lead in service established by Schwab Advisor Services, his former employer and the top custodian in the industry.

“We’re going to have 800 advisors covered [under the team structure] by mid-next year, and we’re going to keep on going,” said Goldman in an earlier interview. He had earlier described how Fidelity had already rolled out that service to its 140 largest RIAs.

“Service and knowledge of clients’ accounts is not the place to skim,” he said.

Pershing has dedicated contacts for all of its RIAs but Schwab and TD Ameritrade Institutional — though way ahead of Fidelity in that department right now — do not have plans to structure service that way for all their RIA clients.

It is doubtful that Fidelity would go back on Goldman’s promises for upping service, according to Doug Dannemiller, senior analyst for The Aite Group in Boston. Dannemiller worked for several years for Fidelity’s clearing subsidiary, National Financial, before taking his current position.

Carefully monitor

Even before Goldman came on board, he adds, Fidelity had begun to carefully monitor client satisfaction in its advisor business in the way it traditionally had in its retail business.

“They’re paying close attention to it,” Dannemiller says. “I don’t see it going away, and I don’t see Gerry McGraw accepting backsliding on that.”

McGraw is the head of Fidelity’s institutional products group. Mike Durbin, president of Fidelity’s RIA unit, reports directly to him.

Though Fidelity measures client satisfaction, it traditionally keeps those measures private. TD Ameritrade and Schwab have been making some of their service scores public.

Client satisfaction

TD Ameritrade disclosed earlier this month that it has a Client Satisfaction Index of 89, which is the percentage of clients who rate the firm as an 8, 9 or 10 on a scale of 1-10. It also has a Net Promoter Score of 65, which is derived by asking advisors to rate the company on a 1 to 10 scale and using the 9s and 10s and subtracting the number of people who score it 0-6.

“We’re the only ones with an advertised score that high,” Tom Bradley, president of TD Ameritrade Institutional in an earlier interview.

Last spring, Schwab disclosed that the average internal satisfaction score accorded client service representatives at Schwab was 93.4% as of Dec. 31, 2008, according to its quarterly survey of RIA clients.

Dedicated rep

Part of Schwab’s formula for customizing service is to assign a dedicated rep to most of its top 1,100 firms, according to information provided by the company in the first half of 2009.

These 1,100 firms tend to have $100 million or more in assets under management, according to data from Nexus Strategy.

Pershing Advisor Solutions assigns a dedicated rep to each of the 480 firms it serves, according to an interview with Pershing spokesman in the spring of 2009, Mike Geller.

Since September, Goldman oversaw the reconfiguration of Fidelity’s service teams into pods in Westlake, Texas, and Smithfield, R.I., to coddle its 140 premier clients – many of whom manage several billion dollars worth of assets.

Advisors who are the beneficiaries of this new service system report that it works very well.

Stepping up

When Fidelity began stepping up its service, Schwab held its own.

“As they attempt to replicate, Schwab will continue to innovate,” said Schwab spokeswoman Alison Wertheim in an earlier interview. “We’re constantly changing and improving our game.”

Dannemiller agrees that Fidelity still has big challenges ahead in trying to chase down Schwab.

“Do I think they’re going to overtake Schwab anytime soon, no,” he says. “I think Fidelity is also becoming an industry target. Pershing is making strong inroads and you have folks like State Street and you come to find out they’re serving very high-end RIAs, and doing so quietly and successfully.”

Brooke’s Note: I spoke to one RIA with more than $200 million of assets that has always used a hodgepodge of banks and brokers for custody but recently moved about $50 million to Fidelity. The advisor has been very pleased in general with his first experience dealing with a true RIA custodian and he and his partners plan to continue to migrate assets to Fidelity — if the company can clean up a couple of issues. When the advisors send the information necessary to open a new account, it inevitably gets sent back to them if anything is deemed incomplete. The advisors then seek help from somebody in a Fidelity call center. But when they have follow-up questions, they often can’t find the original person they were dealing with so they start again with another person. It makes for a painful process. Fidelity has been telling these advisors for a while that they will get a dedicated rep to solve this problem. [It also is telling them that its WealthCentral will eventually replace AdvisorChannel.]When or if this finally happens, this RIA plans to move substantial assets to Fidelity. The dynamic between these advisors and Fidelity seems like a microcosm of the challenge the custodian faces in getting over the service hump and winning much bigger with advisors.

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Mentioned in this article:

TD Ameritrade
Asset Custodian
Top Executive: Tom Nally

State Street Wealth Manager Services
Asset Custodian
Top Executive: Marty Sullivan

Aite Group
Consulting Firm
Top Executive: Frank Rizza

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