The media is misreading the tea leaves left over the Fidelity's shuffling of senior executives this week. So off are some of the stories, that Fidelity chairman Ned Johnson has sent a memo to staffers explaining the moves and defending his daughter's abilities.

Excerpts of the memo were published Wednesday by the Boston Herald.

Monday evening Fidelity announced that Abigail Johnson, Ned's daughter and president of FMR, would take over the Boston Behemoth's FESCo division while FESCo chief Peter Smail would move to head a new institutional money management unit.

Reporters and some analysts interpreted the move as a potential response to Fidelity's falling ranking in the list of asset managers. Last week, FRC reported that American Funds had passed Fidelity in assets under management, pushing the firm to third place (it ranks behind Vanguard as well).

It seems some watchers could not help but put two-plus-two together and speculate that Abby was being moved to clear the way for Stephen Jonas as the new leader at FMR, the implication being that she was in over her head.

The MFWire doubts that is the case.

Johnson, himself, wrote in the memo that "Abby has served well as president of the investment-management division" and that the Fidelity's growth in assets under management was nothing to sneeze at. Of course, Abby is his daughter, but that does not mean he is not telling a straight story.

This morning's New York Times report made it seem that Abby was moved to FESCo because that is where Fidelity sees its growth. True enough, but the paper is reporting old news.

However, what the Grey Lady overlooks is the fact that Fidelity has been primarily a retirement services company and not a fund management for nearly a decade now. That conversion was led by Bob Reynolds and Peter Smail in the mid-1990s when they realized that a significant share of the firm's net new cash was coming from 401(k) plan participants.

In the early 1990s, for example, Fidelity undercut AT&T's captive 401(k) plan administrator with what some industry sources say was a no fee bid in order to win the Ma Bell plan. Initially, Fidelity managed no assets for the plan, but since then that plan has become one of its larger clients. More recently, the MFWire has learned, Fidelity leveraged that relationship to win SBC's plan from Mellon HR&IS, after AT&T was sold to SBC.

Unlike its rivals in the fund industry, Fidelity took the capital those flows provided and reinvested it by building a services and technology designed to keep even the most sophisticated plan sponsors happy. Not only did it remain dedicated to 401(k) plan recordkeeping when other firms bailed, it added payroll and mundane HR outsourcing capabilities. Those services make it easier for plan sponsors to stay than to move.

Johnson's strategy has been apparent for some time; it is just that others in the fund industry have not been listening.

Smail made an interesting remark before the National Defined Contribution Council, a lobbying group for the 401(k) industry mostly made up of mutual fund firms. One fund executive in the audience asked Smail what he saw as Fidelity's role in the retirement industry as a fund management company. What was Smail's answer?

"Fidelity is not a fund company; we are in the plan sponsor services business." No one appeared to believe him then and it looks like little has changed now. 

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