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Despite record profits, Fidelity to cut costs by offering buyouts

A Fidelity Investments office in Los Angeles.
A Fidelity Investments office in Los Angeles. Richard Vogel/Associated Press

Fidelity Investments is preparing to offer employees a voluntary buyout package aimed at cutting its head count and expenses, according to three people briefed on the plan.

It’s unclear how many people the Boston-based investment giant wants to entice into leaving, but the packages are said to be generous and will be extended to hundreds of employees across the company, according to the people briefed on the plan but not authorized to discuss it publicly.

Under the offer, employees age 55 or older who have worked at least 10 years at Fidelity would receive several weeks of severance pay for each year of service, as well as health care coverage at employee rates for 18 months, the people said. Some workers could get up to two years of severance pay.

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Fidelity said it had no announcement to make Monday.

The buyout offer comes less than two weeks after Fidelity reported record revenue and operating income for 2016. The company said it reaped $3.5 billion in operating profit for the year, on $15.9 billion in revenue.

But the business environment has been challenging for investment firms like Fidelity, which historically have focused on in-house research and managers who hand-pick stocks and bonds.

Passively managed index funds have soared in popularity, and Fidelity has slashed fees on its own index funds to better compete. The larger Vanguard Group dominates the business of these low-cost funds, which buy lists of stocks such as the Standard & Poor’s 500.

As consumers’ preferences have shifted, Fidelity and other companies are trying to figure out how to make money on index funds, said Paul Ellenbogen, head of global regulatory solutions at Morningstar Inc., a Chicago fund-research firm.

On Tuesday, the firm is expected to announce a major decrease in its online trading fees for stocks and ETFs, or exchange traded funds, that Fidelity said it will reduce commissions for individual investors to $4.95 a trade, from $7.95, making it one of the lowest-priced providers among the large brokerage firms.

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The move follows a similar one by Charles Schwab Corp. in early February. The San Francisco-based firm cut its fees to $6.95 from $8.95.

“It’s a great opportunity to engage with customers,” said Ram Subramaniam, president of Fidelity’s retail brokerage. “This wasn’t a reaction to any competitor. We don’t have any intention of engaging in any price wars.”

Subramaniam declined to say whether squeezed margins in its brokerage business and other areas are driving Fidelity’s cost-cutting efforts.

In the company’s recent annual report, chief executive Abigail Johnson said “careful cost management” contributed to Fidelity’s profitability last year. The firm reported a 0.4 percent decrease in expenses for 2016, to $12.4 billion.

The buyout will be more costly than a layoff, according to one of the people briefed on the matter. But longer term, it could reduce the number of higher-paid employees and make room for younger ones to advance.

The privately held company employs 45,000 people globally, including about 5,000 in the Boston area.


Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth. Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.