Print this article

Fidelity job cuts hit Family Office Services group

Thomas Coyle

6 June 2008

FMR looks for cheaper, more scalable ways to deliver family-office services. The latest round of job cuts at Fidelity Investments include layoffs from its Family Office Services group, a unit that provides client services, investment products and data-aggregation and performance-reporting technologies to organizations that manage the wealth of ultra-high-net-worth families.

Boston-based Fidelity says that most of the FOS redundancies target personnel associated with its technology platform, though it declines to say how many of them have received pink slips -- nor will it provide a total headcount of FOS personnel, before or after the layoffs.

New direction

"In the course of developing that technology, we recognized that we would need to re-build a scalable and cost-effective platform that's not entirely reliant on proprietary technology," says Fidelity spokeswoman Anne Crowley.

In other words, five years into its development and two years after a soft launch in the second quarter of 2006, Fidelity has decided its technology platform -- the centerpiece of FOS -- needs an overhaul.

The FOS job cuts, announced this past Tuesday, are part of a third wave of layoffs at Boston-based Fidelity in eight months. In November 2007 Fidelity eliminated about 200 positions and in January 2008 it hived off another 250 or so, according to media estimates.

Fidelity won't say how many jobs it's getting rid of across the board this time, but the cuts amount to "a relatively small percentage of our workforce in the overall context of a company that employs over 46,000 people," according to Crowley.

And Fidelity remains a net job creator with about 4,000 more employees now than it had a year ago, says Crowley.

The new job cuts are concentrated in two units: Fidelity Human Resources Services, which provides businesses with employee-benefit and payroll services, and Fidelity Workplace Services, a retirement-plan administrator. These cuts seem to conform to streamlining measures initiated last year by Fidelity's president Rodger Lawson.

But positions were also eliminated in Fidelity's Brokerage Services division, which takes in FOS as well as Fidelity Institutional Wealth Services and Fidelity Capital Markets Services.

But job cuts in Fidelity's brokerage-service businesses were made on a unit-by-unit basis, not as a matter of corporate-wide policy, according to the company.

Significant autonomy

"Our business leaders are given a significant amount of autonomy," says Crowley. "From time to time one business may decide to eliminate positions or increase the number of positions. On Tuesday a few of our business units made the decision to eliminate some positions."

The layoffs at FOS reflect the challenges facing technology vendors to the family-office space, says Thomas Livergood, CEO of the Family Wealth Alliance, a Wheaton, Ill.-based consultancy to ultra-high-net-worth families.

One obstacle FOS faces is a comparative paucity of potential customers. In the U.S. there are only 3,000 or 4,000 single-family and multifamily offices serving families with $50 million or more. Meanwhile there are 12,000 or so independent wealth-management firms serving everything from low-tier millionaires to billionaires.

Data aggregation providers such as RockIT, WealthTouch, Empaxis, Private Client Resources, Fortigent and units of RIA custodians like Pershing and Schwab cater to organizations that support high-wealth families with very complex needs, but they're happy to fish further down the wealth stream than FOS, whose target of families with at least $75 million make it the purest single-family play of the bunch.

And providing technology support to families with that kind of money is a difficult undertaking that calls for a robust and multi-faceted platform to begin with and then constant research and development to keep pace with clients' changing needs.

Space walk

"The complexities associated with a family with $50 million or $100 million is exponentially higher than those that a retired investment-company executive with a $2-million portfolio is going to face," says Livergood. "You're talking about linking aggregation, portfolio accounting, performance measurement, after-tax reporting and general ledger -- it's like the International Space Station where you have all the different countries making the pieces and you just kind of hope it all works when it's up there."

Together these obstacles -- high complexity, intensive R&D requirements and a small market -- conspire to make a family-office technology platform expensive.

"You're asking these families to give up their Advent and their spreadsheets and bet the farm on you," Livergood says of the family-office technology vendor's essential dilemma. "And family offices hate to be sold to."

Despite these challenges -- and despite indications of a set-back at FOS -- Fidelity is still well positioned in a marketplace in which none of its rivals have established an insurmountable lead, according to Livergood.

"They're a technology powerhouse, they understand this market and -- as a private company -- they have patient money," says Livergood. "This is a marathon, not a sprint, and I would never count Fidelity out of the race."

FOS had 36 clients and $5.6 billion in assets under administration on 30 June 2007. -FWR

Purchase reproduction rights to this article.