Outside the Box: Why 401(k) and other retirement savers can be thankful Fidelity’s Ned Johnson was such a visionary
Ned Johnson was a far-sighted pioneer who brought many key innovations to the asset management industry. For example, he figured out how money-market funds could offer checking, which made them competitive with bank deposits. Once Fidelity Investments went direct and stopped selling funds through brokers, he formed a discount broker to attract more customers. Later he set up a company to manage Fidelity’s index funds to separate them from its actively managed funds.
Edward “Ned” Johnson III, who built Fidelity Investments into a fund-industry giant, died on Wednesday at the age of 91. He was one of the first to recognize the importance of 401(k) plans after they were allowed by the Revenue Act of 1978. He invested heavily in the infrastructure necessary to distribute and service these plans for corporate America.
In the initial decades, Fidelity mainly offered its own mutual funds to participants in 401k plans. When the fund-management world moved to open architecture, Fidelity offered plan participants mutual funds from other asset managers as well as Fidelity funds.
More generally, Ned was a technology maven who understood how automation could provide better service to customers at lower cost. For instance, Fidelity was an early adopter of having customer access their account information by touch-tone phone and then via the internet. I really liked to join meetings between Ned and representatives from big technology companies such as IBM and Cisco Systems. He always knew more about how their systems operated than they did.
Through his family foundations, Ned was a major philanthropist, anonymously helping many institutions in Massachusetts and elsewhere. He wanted the middle-class to have the benefit of the type of trust vehicles that had long been used by the wealthy. That’s why he pushed me and others to create the Fidelity Gift Fund — which allows donors to make contribution, have them invested, and donated later to tax-exempt groups. The Fidelity Gift Fund now has more than $20 billion in assets.
Ned was an astute investor in real estate. He knew when to buy property in Boston’s downtown and when to sell. Moreover, he was an early investor in what is now called the Seaport District of Boston. Years before that District became a popular venue for corporate offices, he built there Boston’s version of the World Trade Center and the Seaport Hotel.
As Fidelity expanded, Ned was keen on diversifying by setting up facilities outside of Massachusetts. The money-market and bond funds are located in a state-of-the-art facility in New Hampshire. Fidelity’s retirement business is headquartered in Covington, KY, and Fidelity has a major service center outside of Dallas, Texas. Ned took an active interest in designing all of these new facilities.
Ned also was an ardent internationalist, who realized that distribution and customer service needed to be local, although investing needed to be global. He established a separate company to run all the international offices. Every year he would take a lengthy trip to Asia, where he became an expert on certain aspects of Chinese and Japanese culture. On one of those trips, he found a 200-year-old Chinese house that now stands in the Peabody Essex Museum in Salem, Mass.
Before becoming chairman of Fidelity, Ned successfully ran a mutual fund and achieved an outstanding record. He continued to have a deep interest in investing, from both fundamental and technical perspectives. He took great pride in Fidelity’s chart room, with its amazing array of charts from early in the 20th century. He attended weekly sessions in the chart room, which became a popular attraction for visitors to Fidelity’s offices.
Ned was also an early venture capitalist. He set up a separate arm of Fidelity to invest in small, private firms. For example, Fidelity parlayed its experience with telecoms in Boston to start an alternative telecoms provider in Europe. Fidelity was successful as an early venture investor in various Asian companies.
When Ned took over the chairmanship of Fidelity from his father, Fidelity was a regional company of modest size. To grow Fidelity into the financial giant it became, Ned attracted a bevy of talented executives from around the country. He recruited the best people, regardless of their backgrounds. Although brought up as a Boston Brahmin, he was totally focused on merit.
Most Fidelity executives loved working with Ned. He hated bureaucracy, board meetings and lengthy reports. Instead, he made decisions in an informal manner, arguing vigorously with top executives about the issues to reach the optimal solution. He encouraged top executives to take the initiative in solving problems. In my initial interview with Ned, I asked him for a job description. He replied: “Figure out what needs to be done, and do it.”
I consider it a great honor and privilege to have worked closely with Ned Johnson. It’s rare to find a visionary leader with such a broad range of interests and talents.
Robert Pozen was an executive at Fidelity Investments from 1987 to 2001, becoming vice chairman of the company and president of FMR Co., the investment adviser to Fidelity’s mutual funds.