The Purge - Asset Management Edition

Monkeys, the purge is beginning, and I think this is only the tip of the iceberg. In short, Fido is offering packages to 3,000 workers who meet the 55+10 requirement (55yo + 10y of service), looks to be a year or two of severance, and maybe with some vesting of deferred stuff (an assumption as they don't have stock so they can't accelerate vesting of RSUs). (WSJ article at the bottom)

This brings up a couple of interesting concerns:

  1. will these people try to stay in the workforce?

I realize being in your 50s at a giant like Fido is probably a lucrative endeavor, but I guarantee there are some people getting packages that need to work another 10y to avoid being in financial straits

  1. is this done because the employees are old, expensive, and replaceable?

they will have to tread carefully here, because what could be a good deal for employees could be seen poorly by investors and the public. yes, older employees are expensive, but they've also weathered bear markets, and while youth is important, I think balance is too.

  1. or, is this done because Fido got into a price war with other discount houses and needs to trim fat?

this seems like the obvious answer, and I think there's some truth to it. Fido can never compete with Vanguard on price, chiefly because Vanguard operates out of Valley Forge PA, outsources all of its fund management (and therefore employs little analysts in the traditional sense), and doesn't want its employees getting rich. I mean their founder is only worth 80mm, while a lot of money, you'd expect someone whose firm has $4 trillion AUM to be worth a little more.

for comparison's sake
Larry Fink worth >300mm, BlackRock AUM 5 trillion
Steve Schwarzman worth >14bn, Blackstone AUM >300bn
Abi Johnson worth >14bn, Fido AUM >5 trillion

my gut tells me the AM industry will shrink 50% or more over the next 5-7 years (along with it, PWM). this is through a combination of years of overbilling (too high cost), underperforming firms, and technology. I'm still firmly a believer in active management, and I think the next bear market will give the flow of assets to passive management a pause, but this isn't about active/passive, this is about cost and the size of the industry, and that trend is downward. I still think AM, PWM, and HF will be a good place to be, but just realize in a shrinking industry under fire by technology in a low rate/return environment, it will not be like the 80s and 90s.

so what say you, WSO?…

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Comments (14)

Feb 28, 2017 - 2:28pm

And following Fido's announcement, Schwab announced ANOTHER decrease in trading fees, only two weeks after cutting the fees.

I would be interested in knowing more about if these are targeted layoffs (trading, or fund managers, or tech (highly unlikely)). Very interesting times to be seeing these layoffs considering the all time market highs we have been hitting recently.

Also, surprised about the immediate translation you made into impacting PWM. I thoroughly enjoy reading your commentary on the PWM industry and the future of the industry from your perspective, but I feel as though you have become pessimistic all of a sudden. Would love to hear more!

Feb 28, 2017 - 2:48pm

I say the more I look at it the more the amount of studying I'm doing for CFA level 1 might be a waste of time. Equity research (buyside or sellside) is my target job within the next 2-4 years and I feel like I am attempting to enter a dying industry. I should've just stayed in Real Estate.


Feb 28, 2017 - 2:56pm

would suggest you look at credit. I think credit research will start to matter a LOT more as we enter a bond bear market and an era where firms have hardly any inventory. everybody wants to dissect AAPL's 3 statements, nobody wants to look at bond debentures and credit spreads.

also of interest could be smid, EM, or other esoteric areas like BDCs

get the CFA, it will be good long term, just make sure you don't enter an already crowded party.

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Feb 28, 2017 - 4:02pm

hey man I am not picky, I just want to develop the skills necessary to be a PM one day. Idgaf if it's fixed income (ok maybe a little, fixed income is so boring), emerging markets, smid cap whatever. Just hope there are opportunities down the road.


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Mar 1, 2017 - 4:57am

I don't know if you have a subscription to the FT, but the following article is quite interesting (

Essentially, they are highlighting that while spending on sell-side research is expected to decrease significantly, various funds have started to insource more of their research and increased their spending on research from independent research firms, although these independent research firms tend to be comprised of more senior professionals

Mar 1, 2017 - 6:12am

I think the CFA is always worth doing. However, the portfolio manager I work with thinks an MBA is more worthwhile for a careeer than getting the charter. Especially if the world is racing towards indexodus. I think it is worth noting that he is a charterholder without an MBA.

Only two sources I trust, Glenn Beck and singing woodland creatures.
Best Response
Feb 28, 2017 - 5:04pm

I started my career at Fid (or Fido as ya'll refer to it) on the phones and eventually at one the investor centers. There's two distinct lines of business at Fidelity (for purposes of this post): Personal Investing and Workplace Investing, referred to PI and WI.

The level of talent and specialization is akin to the minors and majors in baseball because the grand majority of WI is full of HS-educated or Associate degree level phone reps going off of cookie cutter responses to typical questions and requests. PI on the other hand is much more similar to traditional PWM and it's where the brightest WI reps aspire to be, for the most part. In a nutshell, WI is huge 401k giant and (from Fid's perspective) meant as a feeder system into PI--via rollovers. WI makes money as a TPA (Third Party Admin), but not nearly the kind of revenue PI brings in via PM and other fees. This was part of the reason they had such a huge issue with the DOL decision. ("I see you've separated from your company Mr. Brofessor. If you'd like to roll it into an IRA we can do it entirely over the phone...I'll get one of our licensed guidance colleagues to answer any questions you may have, is that something of interest to you?")

Some of my own musings on the subject:

  1. For WI 55+ representatives on the phones, they likely can't retire. Unfortunately the dough just isn't as good as many may think (40-75k/year depending on region/team + up to a 5% bonus quarterly) and I'd presume Fidelity is doing this because sadly, many 55+ WI reps struggle with the various tech systems on a relative basis compared to the younger cohorts. This translates to longer call times and less client satisfaction. Longer call times is a big one-- an extra 2 minutes/call extrapolated across thousands of 55+ reps over hundreds of thousands of calls adds up to thousands of hours of wasted productivity per year. This is probably why Abby Johnson is willing to take the short term hit on paying out severance. For the PI 55+ crowd in the investor centers, retirement may be possible but I'm curious if that's who Fid is really trying to push out-- they're the grey hair that the clients love to trust.

  2. See above, pushing out the 55+ WI reps will make plenty of room for those rambunctious 20-somethings that can learn tech much quicker and are willing to grind that much harder to eventually have a shot at making it into the Investor Centers. Side note: Fidelity is privately held and something they very much espouse as a strength as it allows them to look at things on a much longer timescale than quarterly. While they do give out company shares, it's very exclusive Deferred Comp and not traded and they have no intention to go public.

  3. Yes. Trim the fat, Cull the weak. Running money to make money is Darwinism exemplified.

Feb 28, 2017 - 5:40pm

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