Mutual fund giant Fidelity Investments is having a tough time retaining market share in Canada, the Ottawa Citizen reports. It has dropped from the fourth-largest fund company in Canada in 1999 to the seventh-largest today, when Canadian mutual fund assets have almost doubled in the last seven years to $500 billion.
Analysts agree that Fidelity has not been able to curb investor defection mainly because its funds offer fewer dividend-paying and fixed income funds, which Canadian investors prefer. The company's funds also charge fees as much as 55% higher than other funds offered by banks, according to Morningstar data.
Unlike most U.S. investors, Canadians prefer to use their local banks for investment products and activities, and banks have exploited this advantage to occupy a major position in the fund market. Canadian banks have also done a good job of employing top-notch asset managers to sub-advise or offer their funds through the 5,000 bank branches in Canada. "Bank returns used to be pretty brutal," said Robert McClelland, who sells funds through CI Fund Management's Assante unit in Thornhill, Ontario. "The banks have woken up and hired some top-notch money managers."
As well, they have trained their personnel well in how to provide financial advice. The result has been phenomenal. Banks currently hold about 35% of mutual fund assets after receiving about 60% of last year's net new inflows.
Fidelity has been less innovative and flexible in Canada than it has in countries such as Germany and Britain, where the company used various Internet advertising strategies to gain market share. In Germany, for instance, it upped its position from the 16th-largest fund company in 1995 to the seventh-largest last year. Similarly, in Britain, it went to No. 1 position in 2000 from No. 5 in 1998.
Commenting on why Fidelity has appeared to miss the mark in Canada, James Yih, owner of Core Financial Advisors in Edmonton, Alberta, said: "Sometimes, the bigger a company is, the harder it can be to adapt to innovation." Although its Canadian business accounts for a fraction of its total $1.1 trillion American assets under management, Fidelity is making moves to regain market share in Canada by slashing fees on its equity, balanced and asset allocation funds as well as on its fixed-income and money market funds. The company also plans to beef up advertising this year, and has grown its network of financial advisers selling its funds to 37 from 28 in 2003.