Fidelity's Durbin debuts with strategic price cuts

In his first publicly notable move as president of Fidelity’s RIA custody unit, Michael Durbin made wide-ranging price cuts and price waivers that are intended to wrench accounts away from competitors.

For starters Fidelity eliminated commissions on electronic trades for equities and options and it axed transfer of account fees. These cuts apply to new-to-Fidelity relationships establish by advisors from Oct. 1 through June of next year.

It’s important to note that these commission cuts do not help the many advisors who invest using mutual funds, says Sean Cook, president of DCA Global Wealth Management in Norcross, Ga.. Cook keeps some of his $180 million of assets under management with Fidelity and much of it is invested using mutual funds.

Fidelity also cut the cost of using Oracle customer relationship management software by as much as 35% and this cut will hold indefinitely.

These cuts largely mirror price reductions and waivers made in late June by Fidelity’s main rival, Charles Schwab Advisors Services, in its Make the Move campaign. [Schwab did not cut commisisons on options] Those cuts are credited with helping to bring aboard 37,000 new accounts to Schwab and they have saved those clients $2 million of commissions and transfer-of-assets fees, according to Alison Wertheim, a spokeswoman for the company.

Durbin, who was hired from Morgan Stanley last November to replace Jack Callahan, explained why Fidelity followed its competitor in making price cuts.

“Price should not be a barrier to choosing where to custody a client’s assets,” he says in a release. “With our enhancements [to pricing], we believe that advisors can now return their focus to finding the best technology and best service that can help them grow their practice over the long term.”

Unlike Schwab, Fidelity also waived annual custody fees for all new alternative investment accounts, annual trustee fees for all new personal trust accounts and annual custody fees for new accounts in Fidelity’s managed account supermarket. [see accompanying article on the effect these fee waivers may have on some of Schwab’s biggest RIA customers]

The most significant of Fidelity’s cuts by far in pure dollar terms is the pledge by Fidelity to cut the annual fee it levies for use of Advent Software’s APX system by 50% for 2010 and for 2011 – similar in scope to waivers of fees Schwab made earlier this year on its own back office software, PortfolioCenter.

The Advent price chop will literally save tens of thousands of dollars each year for DCA Global, Cook says. His firm uses Advent APX through Fidelity, he adds.

Unlike the other fees that Fidelity is cutting “the advisor pays for the software,” Cook says. “The cost of that is significant.” [Other fees cut by Fidelity are technically paid for by the client, not the advisor.]

Advent’s APX and Oracles’s CRM are part of Fidelity’s WealthCentral advisory platform that it launched earlier this year and it has been adopted by 200 advisors thus far out of about 3,500 advisory clients. These advisors represented a combined $320 billion of assets in custody with Fidelity as of June 30.

Editor’s note: The natural question to ask after reading this article is whether these custodians can really afford to engage in a price war. After all, Schwab has already forgone $2 million of revenues just since the company instituted its waivers and cuts at June’s end, according to the company. What came to mind was a conversation I had last week with Philip Palaveev when I was researching the article about Scottrade’s emergence in the industry. I asked whether there was still room for another big player. Palaveev was quite certain that there is plenty of space. In consulting circles, he says, it’s well know that the custody business is still one of the few financial niches with healthy profit margins. If that’s the case, it stands to reason that custodians can probably afford to absorb a few fees.