On the heels of new worries about Fidelity's management succession plan (or lack of one), it seems the Boston-based investment giant has other issues to confront, including deteriorating investor loyalty and brand perception, determines the latest report released Thursday from Cogent Research.

Cambridge-based Cogent Research's 2010 Investor Brandscape Report crowns Vanguard the number-one mutual fund company in its third annual study of investor's perceptions of leading distributor firms and mutual fund companies, marking Vanguard's return to the top slot it last inhabited in 2006. While Fidelity –- last year's victor -- ranks a respectable second among the top ten mutual fund companies, as it did in 2006, and still leads in terms of brand awareness.

“Firms like Vanguard have not only weathered the storm but made improvements over the last year, particularly in terms of perceptions of fees and brand loyalty,” Cogent's Meredith Lloyd Rice, a principal co-author of the study along with John Meunier, said in an interview with The MFWire.

On the distributor side – with 'distributor' encompassing firms providing accounts through which an investor can own and manage multiple investments – Charles Schwab continued its upward trend from third place in 2006 and second place in 2008 to rank first, surpassing Fidelity. Close behind were Morgan Stanley, Edward Jones, and Merrill in successive order.

“It was interesting that the results were consistent across both sections and that Fidelity moved down in both areas,” Rice noted. “Looking at some of [Fidelity's] ratings trended over the last few years we see that it's not just that other firms are doing better, it's that there was deterioration in their scores related to fees and performance.”

The 2010 study is based on a representative survey of 4,000 affluent and high net-worth investors across the U.S. Rankings for distributor firms and mutual fund companies are based on a composite score that takes into account multiple factors including brand equity, customer loyalty, market penetration, client mix, and wallet share.

Other firms making the top ten list for mutual fund providers included third-place American Funds, T. Rowe Price in fourth, TIAA-CREF at fifth, followed by Franklin Templeton, Fidelity Advisor Funds, Oakmark, Morgan Stanley Investment Advisor Funds, and Schwab/Laudus Funds in successive order. Also of interest, the gap between the top two “star” firms – Vanguard and Fidelity – and the rest of the field narrowed, with perpetually third-place American Funds' strong ratings across-the-board putting the firm in closer running.

Rice attributed Oakmark's ability to jump to the 8th spot up from 31st place in 2006 and 29th place in 2008, at least in part, to having a star portfolio manager on board, which "counts a lot" toward influencing investors' satisfaction and perception of performance. Independent firms such as Edward Jones, which jumped to 4th place up from 8th and 14th in previous years, also improved in the rankings this year due to an increasingly competitive marketplace, with RiverSource and Goldman Sachs' scores showing significant improvement.

Rankings aside, the report aimed to capture investor sentiment and perspectives heading into 2010. In 2006, the first year data was collected for the Brandscape report, the “bull market” mindset was in full swing while 2008's report reflected bleak perceptions. In 2010? A mixed landscape emerged.

“We thought 2008 would be a low water-mark but it was interesting how little has changed since 2008's March lows. We still see a more conservative mindset among investors as well as lower satisfaction with firms and a continued emphasis being placed on financial stability,” Rice surmised.

Perhaps sentiments will begin to thaw by the time Cogent releases its upcoming reports over the next few months, which will include a series of studies examining retirement-related issues like rollover assets in motion and in-retirement income, and a larger financial advisor-focused study in June that will explore shifts in the landscape affecting mutual fund providers.

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Company Press Release

CAMBRIDGE, Mass. - (Business Wire) As the result of significant shifts in brand perceptions, household penetration, as well as changes in investor loyalty, Fidelity Investments has forfeited its position as both the number one distributor and mutual fund provider to key rivals Charles Schwab and Vanguard. These results are included in Cogent Research’s recently released 2010 Investor Brandscape™ report.

The report is based on a representative survey of 4,000 affluent and high net-worth investors in the United States. The rankings for distributor firms and mutual fund companies are based on Cogent’s proprietary CoRe Score™ which combines brand equity, customer loyalty, market penetration, client mix, and share of wallet to produce a composite measure for individual firms and a comparative ranking of all major firms across the industry. Cogent has been tracking CoRe Score™ results since 2006.

According to Cogent Research, different factors are at play in Fidelity’s decline in the distributor and mutual fund categories. As a distributor, Fidelity has been hurt by lower awareness and favorability ratings toward the brand. In addition, Fidelity’s household penetration has diminished substantially. In contrast, Schwab did not see a significant drop in investor impressions this year. Meanwhile, it has done a better job attracting affluent clients and holding on to their assets.

Market dynamics appear to be contributing to Fidelity’s challenges. Specifically, Investor Brandscape™ reveals a decline in the number of investors using 401(k) plans. In fact, for the first time ever, affluent investors now report having more dollars allocated to IRAs than to employer-sponsored retirement plans. “It would appear,” said Meredith Lloyd Rice, an author of the report, “that Fidelity is caught in a perfect storm comprised of an aging population, higher unemployment, and lower across the board plan participation.”

*Top 10 Distributor Firm CoRe Score™ Rankings*

/1./ /Charles Schwab/

/2./ /Fidelity Investments/

/3./ /Morgan Stanley Smith Barney/

/4./ /Edward Jones/

/5./ /Merrill Lynch/

/6./ /Raymond James/

/7./ /UBS/

/8./ /Vanguard/

/9./ /Wells FargoAdvisors/Wachovia Securities/

/10./ /Ameriprise/

Whereas multiple elements of the CoRe Score™ are impacting Fidelity’s distributor ranking, on the mutual fund side the issue is more focused around loyalty. Whereas Vanguard has actually improved its relationship with investors over the past year as a mutual fund provider, Fidelity has seen a decline in loyalty. An analysis by Cogent of the specific drivers of loyalty, including financial stability and range of products, as well as fund performance shows Vanguard performing better than any of its rivals on these and other key drivers. By contrast, Fidelity no longer ranks among the top five mutual fund companies on performance, a critical factor impacting loyalty. Specifically, ratings for the firm on both mid-term and long-term performance have declined considerably over the past year.

“Needless to say, if investors perceive a decline in performance, it’s going to impact how they feel about the brand,” said Meunier. “It’s worth noting however, that Fidelity remains a powerhouse and is probably better positioned than most other firms to make any necessary course corrections in the coming months.”

*Top 10 Mutual Fund Company CoRe Score™ Rankings*

/1./ /Vanguard/

/2./ /Fidelity Investments/

/3./ /American Funds/

/4./ /T. Rowe Price/

/5./ /TIAA-CREF/

/6./ /Franklin Templeton/

/7./ /Fidelity Advisor Funds/

/8./ /Oakmark/

/9./ /Morgan Stanley Investment Advisor Funds/

/10./ /Schwab/Laudus Funds/

*About Cogent Research*

Cogent Research helps clients gain clarity, obtain perspective, and formulate direction on critical business issues. Founded in 1996, Cogent provides custom research, syndicated research products, and evidence-based consulting to leading organizations in the financial services, life sciences, and consumer goods industries. Through quality research, advanced analytics, and deep industry knowledge, Cogent Research delivers data-driven solutions and strategies that enable clients to better understand customers, define products, and shape market opportunities in order to increase revenues and grow the value of their products and brands.

 

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