Abby Johnson – Future of Finance

**Patrick O'Shaughnessy** (0:24)
Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management.
Over the summer, I spent time with Abby Johnson, who is the Chairman and CEO of Fidelity Investments and several other business leads at Fidelity to understand how a very large firm like theirs is navigating change in our industry. What follows is a condensed version of my various conversations with Abby and her team. We discussed the big buzzwords like blockchain and machine learning, but also thoughts on leadership, client centricity and measures of success. I hope you enjoyed this exploration. So I thought a really fun place to start would be early on in your career, specifically with your first experiences in the investing world, maybe even industries that you covered and describe those early experiences, because I always like that as a framing for the bigger picture things that we'll talk about.

**Abby Johnson** (1:31)
So when I first joined Fidelity after I got out of business school, I joined in 1988 as an equity analyst and I was assigned industrial equipment as the industry to follow. And as you can imagine, the brand new analysts didn't get all the plum assignments. So my assignment was no exception.
And I spent a lot of time traveling to the Midwest where most of the companies were located. And so my early experience in investing was really learning how to analyze and try to figure out how to make money in mature to declining industries. So as you can imagine, that industry today is quite a bit smaller than it was back in the late 80s. It was actually a really great way to learn how to invest because you had to really look a lot at valuations and whether the company had a long term future because so much consolidation was going on because it wasn't a growing industry that you had to think about that as well.

**Patrick O'Shaughnessy** (2:45)
I imagine that capital allocation skill of the managers was a key part of analyzing those businesses. Was that something you cared a lot about?

**Abby Johnson** (2:52)
Well, you had to certainly watch where they were investing and were these companies investing for an industry that used to exist, which some of the management teams were, when you knew that the world of manufacturing was going to change dramatically. And some of the companies really were quite forward looking and thought about how industrial production was really going to change and adjusted their business strategies and were really rewarded for doing so.

**Patrick O'Shaughnessy** (3:27)
That is kind of a perfect segue to the asset management world of today, which I think in certain aspects is mature. But I know a great deal of your attention is thinking about kind of where we've been and where we're going and trying to position a big company accordingly.
So I'd love to just get your at least starting take on the most significant trends could be in recent years, could be over a longer period of time that you see in the asset management space as being the things that you most need to focus on as a business to evolve with the changing landscape. Because I think it's fair to say we are fairly mature and costs have come down, fees have come down. So there are some headwinds. So some general framing thoughts on the big trends in asset management would be a great place to start and then we'll go kind of in into each vertical, if you will.

**Abby Johnson** (4:10)
Well, when I started in the industry, individuals had two choices. They could either go to a traditional stockbroker and try to buy individual securities and work with that broker to develop an equity portfolio that suited them or they could buy a mutual fund. So it was pretty straightforward world back then. And now if you look at the range of options that any retail investor has in front of them, it's such a wide range of options that are out there. ETFs didn't exist. Managed accounts didn't exist. It was just a lot of the derivative products that are now packaged and sold. Not so much to retail investors, maybe more to sophisticated investors, but potentially to individuals. The complexity of our industry is probably the overriding trend that I think has just really changed the business since I joined. More recently, there's been an acceleration around fees. When I say more recently, I'm really thinking the last 10 years of fee pressure.
Also, the last 10 years in acceleration in the regulatory change and the potential regulation impact from the industry are really... Those are the two big things that I talk to people about internally most frequently when I'm trying to recalibrate everybody in the company's expectations about what's going to be different in the future than it has been in the past.