The firm has in the meantime become the nation’s biggest administrator of 401(k) retirement plans and one of its largest discount brokers, offering clients hundreds of funds in addition to its own.
Few people outside Fidelity know what Johnson plans to do to turn around the 67-year-old firm’s fund business. In addition to being the nation’s 13th-wealthiest woman — with assets of $9.4 billion, according to the Bloomberg Billionaires Index — Johnson is also among the most mysterious executives in finance. Fifteen months after being named president, in charge of all of Fidelity’s key business units, she has said nothing publicly about her goals for the company. She declined to grant an interview for this article.
The challenges Johnson faces are clear without her enumerating them. Assets in Fidelity Investments’ actively managed stock funds fell 16 percent in the past five years, and management and advisory fees were down an estimated 13 percent. Operating profit for all of Fidelity fell 31 percent in 2012 to an estimated $2.3 billion. Near-zero interest rates have forced the firm to waive fees for managing the $427 billion in its money-market funds to keep the funds’ returns positive. In April, Standard & Poor’s lowered the outlook for the ratings on Fidelity’s long-term debt to negative from stable.
And Fidelity is the last of the big money-management firms to take advantage of one of the most significant developments in personal finance: the shift into exchange-traded funds, which trade like stocks and were first offered in the United States in 1993. Total investment in U.S. ETFs grew to $1.55 trillion as of Oct. 4 from $65 billion in 2000. Just one of the 1,300 U.S. ETFs is managed by Fidelity.
Donald Putnam, co-founder of Grail Partners, a San Francisco-based firm that invests in money managers, says Johnson clearly needs to shake things up if she wants Fidelity to be a leader in investment management again.
“Since the 1980s, I don’t believe there’s been a significant strategic development at Fidelity,” he says. “I’m not saying it’s not a good company, but as a strategic matter, it has long since lost its way.”
Ronald O’Hanley, head of asset management at Fidelity, says his boss is taking action. He says she’s behind Fidelity’s effort to raise its fee income with a service in which Fidelity advisers will help clients set up portfolios made up of mutual funds, ETFs and other investments that are customized according to their appetite for risk.