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NATIONAL FINANCIAL STUDY REVEALS KEY TRENDS AND DRIVERS FACING BROKERAGE OUTSOURCERS Outsourcing Can Play Pivotal Role in Helping Brokerage Firms Meet Business Goals, While Maximizing Efficiencies and Driving Higher Service Levels

BOSTON, November 4, 2004 - As competition in the brokerage industry continues to intensify, a new study conducted by National Financial, a Fidelity Investments company, reveals that broker/dealers are hiring third-party providers to administer their brokerage-related functions and processes not only to reduce costs but to gain access to a provider's technology and service expertise.

According to the National Financial study, The Evolution of Brokerage Outsourcing: The Road to Integration, broker/dealers recognize multiple benefits from outsourcing functions, such as clearing, equity trading, and order management systems, with most viewing the practice as a way of providing a "virtual extension" of their organizations.

"The human and financial capital needed to build and maintain an efficient brokerage infrastructure continues to escalate as competition increases and firms face growing regulatory requirements," said Norman Malo, president, National Financial. "As such, broker/dealers are increasingly turning to outside specialists to service their operations-helping to reduce overall costs and drive business growth.

"In fact, as our client base has doubled over the past year to nearly 270 firms, including 24 new clients added in 2004, we continue to see more firms asking for services beyond traditional clearing. They are increasingly seeking a provider with a comprehensive, integrated platform," Malo continued. "As our research makes abundantly clear, the outsourcing of brokerage functions has been embraced by the industry and, in fact, may already be paying strategic dividends for many firms."

According to the National Financial study, brokerage firms say that the most recognized benefits of outsourcing are:

• Gaining access to the provider's specialized expertise and staffing levels-critical during high volume periods or when high priority issues arise;
• Obviating the necessity of large investments in, and maintenance of, internal systems and staff, allowing firms to focus resources on more critical business issues such as improving operations, generating more sales, and providing higher levels of service; and
• Having the ability to shift some of the systems and processing costs from a fixed to a variable cost structure.

Integration Promotes Satisfaction

Integration of outsourcing services has begun to take root in the industry. Firms report that, on average, they outsource 11 different functions-from the study's list of 20-to an average of two providers. Even though a certain degree of integration already exists, only one out of four (25 percent) firms believe their outsourced functions and relationships are very integrated.

Not only are most (91 percent) brokerage firms satisfied with their outsourcing experience, including 32 percent who are very satisfied, but the National Financial study shows that there is a positive relationship between the degree of integration a firm reports to have and its overall satisfaction. In fact, among firms reporting they are very integrated, half (52 percent) are very satisfied.

Additionally, two out of five (41 percent) firms report they are considering further integration. Of those, the three most often cited reasons are: easier vendor management; more integrated functionality/service; and cost efficiencies.

"With firms contracting an increasing number of their brokerage functions, integration of outsourcing services is important to maximizing efficiencies and maintaining consistent service levels," Malo said. "In fact, our study reveals that there is a positive correlation between integration and satisfaction, which suggests that firms tend to get more seamless, integrated solutions and greater satisfaction when they outsource to a scale provider that is able to meet multiple needs and deliver best-inclass solutions."

High Satisfaction

Outsourcing in the brokerage industry is a widely-accepted practice, evolving to the point where nine out of 10 (91 percent) firms report they are satisfied overall with their experience. Among those who are satisfied, nearly 80 percent say they have absolutely no regrets about their decision to outsource. Virtually all executives (97 percent) agree that the most successful outsourcing relationships operate more like partnerships, built on mutual trust and understanding. Most often, this partnership is demonstrated by an outsource provider who:

• Shares the firm's business priorities and issues;
• Has a thorough understanding of the firm's business and its goals;
• Displays a genuine interest in helping the firm and its clients solve problems; and
• Provides timely, accurate resolution when problems arise.

According to our study, brokerage firms do not feel there are any significant barriers or concerns to outsourcing. In fact, issues such as cost and control are viewed as relatively minor and easily manageable. For example, many executives consider in-house solutions to be cost-prohibitive, usually citing the high internal costs to design systems and invest in infrastructure; the need to maintain and upgrade systems on an ongoing basis; and the requirement to hire, train, and retain staff with the knowledge and expertise to develop and maintain these systems.

Additionally, the National Financial study reveals that the majority of executives (81 percent) say the benefits of outsourcing outweigh any potential loss of control issues. In fact, 40 percent believe outsourcing gives them even more control.

"With high levels of satisfaction, we expect firms to increasingly leverage external providers, like National Financial, to help them drive business growth," said Malo. "Backed by the financial strength and resources of privately-held Fidelity Investments, we are able to take a long-term view of the marketplace and invest in the technology, products, and services that broker/dealers need to position themselves for success today as well as tomorrow."

The National Financial study, The Evolution of Brokerage Outsourcing: The Road to Integration, was conducted by Evanston, Illinois-based Richard Day Research, Inc. Telephone and online interviews with 201 senior-level decision-makers in retail and institutional brokerage firms across the United States in March and April of 2004. Neither Fidelity Investments nor National Financial, its correspondent clearing unit, was identified as the survey sponsor.

About National Financial

National Financial provides broker/dealers, ranging from institutional and full-service firms to independent contractors, banks and discount brokers, with clearing and execution products and integrated productivity tools to help enhance firm profitability, drive business growth and forge deeper customer relationships. National Financial also offers an online brokerage platform, compliance support, middle - office outsourcing, consolidated record keeping tools, fee-based solutions, and retirement and high-networth products, all supported by dedicated client service professionals. The company currently provides clearing services to nearly 270 financial institutions representing 3.5 million client accounts and approximately $353.0 billion in assets, as of September 30, 2004.

About Fidelity Investments

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $1.9 trillion, including managed assets of $1.0 trillion as of September 30, 2004. Fidelity offers investment management, retirement planning, brokerage, human resources and benefits outsourcing services to 21 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com.

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Richard Day Research Inc. is an independent company and is not affiliated with Fidelity.
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