The investment industry has come under intense pressure in recent years, buffeted by falling fees and rising costs. Abigail Johnson — the founder’s granddaughter who picked up the reins five years ago — is trying to reforge Fidelity for a new era, where technology permeates and reshapes every aspect of the company’s disparate businesses.
Its dabbling in cryptocurrencies — Fidelity mined its first bitcoin in 2014, which now sits on the corporate balance sheet — has attracted the most attention, given the clash between its wild-west nature and the Boston institution’s conservative image. But Johnson is now spending about $3bn a year on tech to modernize every business line, from trading to retirement planning.
The finance industry can often appear surreal to outsiders, but Fidelity is exploring whether virtual reality can make it more palatable to consumers. Adam Schouela at the Fidelity Center for Applied Technology enthusiastically shows off a virtual space that customers can use as a fun way to plan their financial future. The gaming-like environment may still be at an early stage, and currently mainly used to train Fidelity staff. But Schouela sees it as emblematic of the company’s willingness to test out-there technologies and see if they might be relevant to Fidelity.
Sometimes an initiative may initially appear like a waste of resources, such as building a Fidelity application for the Pebble smartwatch that launched to great fanfare in 2013. It proved a damp squib, and was quickly discontinued. But Fidelity’s work proved valuable when Apple unveiled its own smartwatch in 2015, helping the asset manager have an app ready on its launch.
The technology centre is also where Fidelity’s initial bitcoin experiments took place, which last year evolved into a standalone company, Fidelity Digital Asset Services. What was initially just a “fun” experiment is now being rolled out as a major service to the cryptocurrency industry, Johnson said to the FT.
Many quantitative investment groups are skeptical that traditional companies like Fidelity will be able to spray money at modish tech projects and retool their business in a meaningful way, comparing it to turning an oil tanker in a tight canal. By that logic, Fidelity is an aging supermax vessel.
Upgrading Fidelity’s core tech infrastructure — which was largely developed in the 1980s — is time-consuming and expensive. “We did the same thing everybody in the industry did, which was you started creating apps and we put the apps on top of the old technology,” says Johnson. “And it works, but then at some point you realize OK, this is not the best way to do things.”
Johnson admits that profits may be hit. “You’ve got to have your nose to the grindstone to keep your cost curve ahead of the expected fee compressions. That is not a recipe for expanding margins,” she says.
Financial comfort gives Fidelity a good springboard to make some big leaps. Last year it reported record operating income of $6.3 billion, more than BlackRock’s $5.5 billion. “They have a lot of ingredients for success,” says the industry analyst. “[Fidelity] has scale, and they’re so profitable that they can afford to invest a lot on upgrading their technology.”