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Fidelity Merges Clearing and Custody Arms; Launches Tech Unit

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In a move five years in the making, Fidelity is combining its RIA custodian and broker-dealer clearing units, it announced in March. It has also created a new technology operation, Fidelity Wealth Technologies, that will include the recently acquired eMoney Advisor.

The changes, the company said in a statement, reflect the “growing, emerging and converging business models in the financial advice industry.”

Sanjiv Mirchandani, who has headed Fidelity’s National Financial clearing operation since 2009, will become president of the newly formed Fidelity Clearing and Custody. Mike Durbin, who in the same year joined Fidelity Institutional Wealth Services (IWS), the second largest RIA custodian, will become president of the new Fidelity Wealth Technologies group. That group will include eMoney Advisor, the financial planning and data aggregation software firm whose acquisition was announced by Fidelity in early February. Once that acquisition closes, eMoney’s founder and CEO, Edmund Walters, will report to Durbin, according to a Fidelity statement, and “maintain his role leading eMoneyAdvisor.”

In an interview, Mirchandani said, “What we’re trying to offer is the best of both worlds for our clients,” and emphasized that clearing and custody clients—and the other customers in the former National Financial and Fidelity IWS—will continue to work with the same service teams they have been using. “Bob Oros will continue to run the RIA” sales and relationship operations as executive vice president, Mirchandani said, while “Joe Kelly will continue to run the broker-dealer” side as senior vice president and head of relationship management for independent BDs.

As for Fidelity Wealth Technologies, the company said the intent is to “drive and deliver digital solutions across the Fidelity enterprise and throughout the financial advice industry” and “help to speed innovation on behalf of” Fidelity’s advisor “clearing and custody clients.”

Referring to the realignment in an interview with Mirchandani, Durbin said Fidelity is “uniquely positioned to do this because of the size and scale of our business; our competitors couldn’t pull this off even if they wanted to.”

At the time of the eMoney announcement, Fidelity said it showed its commitment to a “significant, multiyear investment in a next generation technology platform, which will offer comprehensive data management, efficient and integrated workflow capabilities, and collaborative tools for investors, advisors and home offices.”

The applications that come out of that platform will be “not just for advisors,” Durbin said, but rather to “source and deploy the technologies for all the financial services channels.” He stressed that under the Fidelity Wealth Technologies umbrella, “eMoney will be an independent company run by Ed Walters,” pointing out that 70% to 75% of eMoney’s current users “are not Fidelity customers.”

In fact, Durbin said, “We want to continue to grow” eMoney to “source and deploy and make a return […] across all the channels.” In addition, he said eMoney “can help the Clearing and Custody” customers of Fidelity, along with other “Fidelity branded channels, licensing and integrating eMoney like any other” technology application.

But Durbin said that the firm will source other technology products as well, and pointed out that as a separate company, Fidelity Wealth Technologies will operate as “an unregulated entity.”

After all, Durbin said that “the distinction between the business and technology is gone.”

He pointed out that “eMoney has distanced itself from its competitors by its incredible focus on client feedback—their executives take engineers on the road with them” when visiting clients. He said he’ll have “no shortage of feedback channels” through Fidelity Clearing and Custody customers, saying “feedback is a gift.”

The new unit is “not starting from zero,” since it will have eMoney in its fold, and “true to Fidelity heritage, we’re looking for long-term value,” though Durbin admitted that “the marketplace is not always patient.” However, “eMoney has a product roadmap that we think we can complete; same with Clearing and Custody’s” strategies.

“We’re not starting from scratch,” Durbin concluded, but “with a vision.”

The realignment of clearing and custody is a process that has been occurring over at least five years, which included the delivery to those units of technology that originated in Fidelity’s retail operations, and was highlighted in July 2013 when the clearing and custody business was formed around key client segments: banks and broker-dealers under National Financial, and RIAs, professional asset managers, strategic acquirers and retirement advisors and recordkeepers under Fidelity IWS.

Since that 2013 alignment, the company said that assets under administration in the clearing and custody businesses have grown by nearly 30%, ending 2014 with a record high of nearly $1.5 trillion in assets under administration, servicing more than 3,200 advisory firms and 5.5 million accounts.

So if the realignment reflects the “growing, emerging and converging business models” in the advice space, would Fidelity Clearing and Custody be able to help an independent broker-dealer keep its top producers who are tempted to become RIAs? “We are a solutions company,” said Mirchandani, “so if our clients have a problem, we have the ability to put together those types of solutions in a much more seamless and rapid fashion.”

Mirchandani will continue to report to Gerard McGraw, president of Fidelity Institutional, while Durbin will report to Michael Wilens, president of Fidelity Enterprise Services. The senior leadership at the former RIA custody business, Fidelity Institutional Wealth Services, who had reported to Durbin, will now report to Mirchandani.