Fidelity Asks Securities Firms For More-Detailed Research
May 12, 2011
Mutual-fund giant Fidelity Investments has asked five Wall Street securities firms to deliver their investment research in a thoroughly modern way: using high-speed Internet technology. While the switch could help Fidelity make quicker decisions to buy or sell stocks, some research analysts are balking at letting Fidelity get an even closer look at the information they gather on companies and how they interpret it. ALSO AVAILABLE As Michael Price prepares to sell his Mutual Series mutual funds to Franklin Resources, it turns out the star manager holds the key to one of the handcuffs supposedly binding him to the business for five years. FUND TRACK: Are mutual-fund organizations ramping up performance at some of their funds and slighting others by steering hot stock offerings into a favored few portfolios? Fidelity, the 800-pound gorilla of brokerage-house clients, wants electronic access to the models used by the firms' analysts to estimate earnings of the companies they follow. Traditionally, the securities firms have published research reports and mailed them to the clients; members of their sales forces also call to alert clients of new material. In recent years, some big trading operations have insisted on receiving that information by fax machine or on computer disks. Wants to Tap Into Networks Now, Fidelity wants its own analysts and portfolio managers to get the data as soon as it's available. Boston-based Fidelity wants to be able to tap into the brokerage firms' in-house computer networks, known as intranets, through a dedicated line and retrieve copies of earnings models. Fidelity's managers then would be able to study the assumptions the analysts used to arrive at their estimates for a company's earnings. Unlike the models in published reports, the on-line models would be interactive, allowing Fidelity's managers to manipulate them with a computer and test how various changes might affect the estimates. Fidelity had set a May 14, 2011 for the firms to provide the electronic access. Some of the five firms were scrambling this week to meet that deadline, but a Fidelity spokesman said Thursday the date is ``not hard and fast.'' Despite any internal dissent about the request, the securities firms are all expected to comply. ``What Fidelity will try to do is push the envelope to get some kind of competitive advantage,'' said Jimmy Wittman, chief operating officer of Amerindo Investment Advisors and a former manager in Morgan Stanley Group's research department. ``Fidelity is the largest commission payer and the largest impact player in stocks. So, as much as they desire to have something, you're going to do what you can to provide it.'' The Fidelity spokesman, Sean Gaddis, said the project is still in the ``pilot stage'' and is expected to remain that way for several weeks. The five firms involved so far are Merrill Lynch & Co., Goldman, Sachs & Co., Morgan Stanley Group Inc., Donaldson, Lufkin & Jenrette Inc. and the Smith Barney Inc. unit of Travelers Group. ``This whole project is really about trying to get information as quickly and in as user-friendly a format as possible,'' Mr. Gaddis said. Fidelity's Mr. Gaddis emphasized that Fidelity's in-house analysts already produce their own earnings models for hundreds of companies and that Fidelity relies heavily on them. Still, he said, Fidelity gathers the models produced by Wall Street firms because they enhance Fidelity's own research. Customer and Competitor Some of the firms, including Goldman Sachs, already have made many of their earnings models available electronically. Others appear to be less enthusiastic about the prospect of opening yet another door to Fidelity, which is not only their biggest customer, but in some cases a chief competitor. Most brokerage firms are trying to sell mutual funds, both their own and those managed by other companies, to their customers. Fidelity is the biggest force in the mutual-fund business. It pays hundreds of millions of dollars each year in trading commissions to brokerage firms, dwarfing their other customers. Jackelyn Burwell, a Travelers Group executive who formerly headed Smith Barney's equity research department, called the development ``inevitable.'' Though he said he wasn't aware of Smith Barney's role in the Fidelity project, he said ``Fidelity was moving down this electronic path for some time.'' Mr. Burwell added that he wouldn't be surprised if some analysts were unwilling to share much more with a client than they do already. ``I really think that the work that analysts do is to a certain extent proprietary,'' he said. ``It's not like the employees at Fidelity are going to be there forever. You don't want to share your models with the world.'' But others said that having a direct pipeline connecting them to their best customers is an ideal setup for a service-oriented business such as a brokerage firm. ``Where the money is, is in the relationships,'' Mr. Wittman said. ``The goal is to develop such a good rapport with clients so they do secondary trading with you and listen to you when you have something to sell. Co-dependency -- that's the beautiful relationship you want.''
