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February 2, 2006

Unbundling-the Other Fidelity Shoe Drops

By Peter Chapman

Another brokerage client bows to pressure from one of the world's largest money managers. As reported in Traders Magazine last month, Deutsche Bank Securities has joined Lehman Brothers in agreeing to unbundle brokerage commissions for Fidelity Investments. At presstime, the mutual fund giant announced it would pay for Deutsche's execution services and proprietary research separately. Research payments would come from cash; trades would be paid for with client commissions. Fidelity officials said this would be a boon for the clients of its equity funds. "It will result in lower commission costs on trades with Deutsche," a spokesman said. "We are continuing to engage other brokers in discussions in an effort to reach comparable arrangements," he said. Some analysts have predicted that Fidelity's unbundling push will force other big funds to do the same, swearing off the use of soft dollars and putting a dollar value on research services. For Fidelity-and possibly other investment companies-unbundling may be a way of lowering costs and providing better fund performance in a period of low fund returns.