A surprise retirement changes succession picture at Fidelity
An executive seen as a possible successor to Edward C. ‘‘Ned’’ Johnson III, the legendary 76-year-old chairman of Fidelity Investments, retired suddenly yesterday, complicating leadership plans at Boston’s most important financial company.
Vice chairman Robert Reynolds, 55, retired after 23 years at the mutual fund giant that manages $1.4 trillion around the world. Reynolds was also the chief operating officer at Fidelity, reporting directly to Johnson.
His departure along with a Fidelity reorganization boosted the stature of another executive, Ellyn McColgan, 53, whom some now see as a possible successor to lead the company. The other possibility: Abigail Johnson, the chairman’s 45-year-old daughter who runs a subsidiary of Fidelity, but some consider her career track record to be lackluster.
‘‘What you’re seeing is Fidelity consolidating its most senior leaders with an eye toward who is going to lead the company into the next decade,’’ said James Lowell, who publishes a newsletter for Fidelity investors.
The size and broad scope of Fidelity’s business make the future of the company an important issue throughout the state. Fidelity employs 13,000 people in Massachusetts and 42,000 overall. It remains the city’s largest mutual fund manager, but also operates a big brokerage business in Boston, invests in real estate, sells administrative services to companies, and invests aggressively in venture capital.
The Johnson family, worth many billions thanks to Fidelity, is well known for philanthropic contributions in the region to such local institutions as the Peabody Essex museum in Salem.
The latest company shakeup comes at an important time for Fidelity. Its mutual funds, once market leaders, mostly produce average results now. Other mutual fund companies, particularly the American Funds, have outperformed Fidelity in recent years and have attracted much more business. Meanwhile, the investment industry is bracing for the looming retirement of members of the baby boom generation, who are expected to slow their saving and start spending their nest eggs.
‘‘Fidelity is facing one of the biggest succession issues in its history,’’ said Ben Phillips, a managing director at Putnam Lovell NBF Securities, an investment banking firm in New York that specializes in financial service companies. ‘‘At the same time, the whole industry is in the midst of one of its biggest changes in a quarter century.’’
Three executives in charge of Fidelity’s investment operations, who had reported to Reynolds, will now answer to Edward Johnson directly, the company said yesterday. Reynolds began overseeing Fidelity’s top investment executives just months ago, stepping into the role of another departing senior manager, Stephen Jonas.
Fidelity has been revamping its investment process to improve performance, particularly how it manages in-house financial research. Reynolds, in an interview in Barron’s earlier this month, described that project as only halfway complete.
Reynolds is hardly the first Fidelity executive to rise to the top ranks only to move on. Longtime Fidelity executive Robert Pozen, once in charge of the company’s investing arm, decided to leave five years ago. Pozen is now chairman of the financial services firm MFS Investment Management in Boston.
But the succession issue became more pressing over time as Fidelity’s chairman grew older. The company has grown larger and even more complex, moving into new kinds of back-office services for corporate customers.
Fidelity itself has become less of a family business. When Edward Johnson joined Fidelity as a young man in 1960, he went to work for a company founded by his father 16 years earlier with $3 million in assets to manage. He became known as a highly talented investor in his day, managing the famous Fidelity Magellan fund to big returns well before Peter Lynch took over the job.
Today, employees and other insiders own just over half of the company and Johnson family members own the rest. Abigail Johnson had been the largest individual shareholder of the company, but Fidelity no longer discloses individual ownership among Johnson family members and officials yesterday declined to discuss it.
The retirement of Reynolds yesterday was a surprise, but not entirely a shock. Eight months ago, his name surfaced on the short list of contenders to become commissioner of the National Football League. At the time, he said he would consider taking the job but had not committed to leaving Fidelity.
Reynolds couldn’t be reached yesterday, but Fidelity officials said he had not been asked to leave.
‘‘It was Bob’s decision to retire,’’ said spokeswoman Anne Crowley. ‘‘The chairman asked him to stay a few more years, at least, but Bob decided it was time. He’s had an extraordinary run.’’
Reynolds, who made his reputation as a marketing executive, is credited with moving Fidelity into the retirement savings business just as 401(k) and other plans began to boom. That business has generated most of Fidelity mutual fund sales for years now, far eclipsing the company’s old direct-to-customer sales approach. The successful shift into the retirement savings business was critical to Fidelity and helped propel Reynolds’s career to the point he became Johnson’s top deputy.
‘‘He was the one who shifted Fidelity into that,’’ said Phillips. ‘‘That’s his legacy at Fidelity.’’
McColgan, who runs Fidelity’s brokerage business, was given a promotion and broader responsibilities yesterday. She was put in charge of additional Fidelity units like its institutional mutual fund arm and a life insurance subsidiary while retaining oversight of the company’s brokerage business.
A Fidelity announcement highlighting the McColgan promotion also mentioned Abigail Johnson prominently, though there were no changes in her responsibility. ‘‘In Ellyn and Abby, we have two strong leaders who will work in tandem,’’ Edward Johnson said in the statement. The Reynolds retirement was first mentioned in the seventh paragraph.
McColgan is widely admired for the growth of Fidelity’s brokerage business. Her name surfaced in Boston’s financial services community about possible advancement last fall when news of Reynolds’s interest in the NFL job surfaced.
‘‘She has left no question about her desire to take on as much responsibility and assume as great a leadership role as she can be given,’’ said Lowell.
Abigail Johnson is president of a Fidelity subsidiary that provides retirement services, employer benefits, and payroll services to corporate clients. The business, far from money management, is still considered an important part of Fidelity’s future.
In the past, she has managed a mutual fund and run larger operations at Fidelity, including its investment management arm. But Fidelity watchers have a hard time pointing to high profile accomplishments in those posts.
‘‘It’s hard to know what it is she’s actually accomplished,’’ said Lowell. ‘‘Maybe there’s a lot, but I don’t know how you track it. Her record has certainly lacked luster.’’
Steven Syre can be reached at syre@globe.com. 