Mutual Funds
Fidelity, Lehman ally
June 28, 1999: 2:18 p.m. ET

Fund giant's brokerage unit teams with Lehman Bros. to offer new services
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Boston fund giant Fidelity Investments and Wall Street brokerage Lehman Brothers announced a new alliance Monday to offer Fidelity brokerage customers access to IPOs, research and other Lehman Brothers services.
     The deal will help Fidelity compete with other discount brokerages by luring investors with more research and investing products, the two companies said. It will give Lehman Brothers access to retail investors and a strong distribution network for its products.
     The companies did not disclose financial terms.
     "We really have to keep raising the bar to be competitive," said Bob Mazzarella, president of Fidelity Brokerage Services. "We want customers to consolidate their assets with Fidelity."
     The two companies will set up working groups that will study, among other topics, the introduction of new investing products for retail investors. Those products will not include new mutual funds.
     "This gives us a chance to enter the retail (investor) space and the Internet space," said Joe Gregory, head of global equities at Lehman Brothers. It's not clear what products Lehman will offer through the new arrangement, he said.
     While pairings between fund companies and brokerage houses aren't that common, there are some examples.
     Fidelity and Salomon Brothers made an arrangement in January 1997 where Fidelity clients could get access to some IPOs managed and researched by Salomon. Travelers Group acquired Salomon later that year, forming Salomon Smith Barney.
     Mazarella said Salomon changed its distribution plans after the merger.
     "We believe in partnering with a strong investment bank," Mazarella said. Mazarella pointed out that it's not so much a story about a fund company pairing with a brokerage house, since this arrangement is with Fidelity's brokerage business.
     Gregory said the entree to IPOs is only part of the alliance.
     "Our full intention is to distribute a wide arrange of products," Gregory said.
     Among the new services available to Fidelity brokerage customers are secondary offerings and new issues of preferred stocks where Lehman is the lead manager.
     Fidelity customers must meet certain requirements to get in on the IPOs, however. For example, clients must have $500,000 in assets with Fidelity.
     Russ Kinnel, an analyst at Morningstar, said the pairing shows how the lines are blurring in the financial services industry.
     "Discount brokerages are providing more advice, and mainline brokerages are providing discount services," Kinnel said. "Clearly there are going to be more deals like this, especially with investment banks that are good at creating IPOs and deals."
     Kinnel said the alliance would not have any impact on Fidelity fund investors. "It gives them another reason to tie into Fidelity."
     Donald Dion, editor of the newsletter Fidelity Independent Advisor, said the Lehman alliance continues a trend where the Boston fund giant is trying to encourage investors to keep all of their assets with Fidelity. Fidelity recently bought a stake in brokerage W.R. Hambrecht & Co.
     "This will give Fidelity retail customers much more access to Wall Street," Dion said.
     Both Dion and Eric Kobren, editor of the newsletter Fidelity Insight, said the Lehman deal will help Fidelity compete with Charles Schwab, the largest discount brokerage.
     Shares of Lehman Brothers (LEH) were up 2-9/16 at 56 in early trading Monday.Back to top


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