Fidelity Investments Plans 800 Layoffs, 10.5% of Work Force

Fidelity Investments, the biggest U.S. mutual fund group whose business boomed during the bull market years on Wall Street, said Monday that it was dismissing 800 employees, or 10.5% of its work force.

Layoffs had been expected at Fidelity, whose funds include the fast-growing Magellan Fund, because the mutual funds industry has been under pressure since the October stock market crash rattled millions of small investors.

The firm said it would base the need for future cuts on the pace investors return to mutual funds.

“We will be monitoring business conditions,” said spokeswoman Karen Ernst. “We don’t anticipate any more layoffs at the moment, but that will depend on the market.”

Fidelity attributed the 10.5% work force reduction to a slump in new stock transactions and slower money management business since the Oct. 19 crash.

Also, the company reported a drop in individual retirement accounts because of new federal laws limiting the tax deductibility of IRA contributions.

Ernst said most of the dismissed Fidelity workers were from corporate staff departments and “volume-sensitive” jobs, such as telephone representatives, order takers and mail processors.

“These were the people directly affected by a decline in new business,” she said.

About 530 workers were laid off in Boston area offices, with about 150 in Dallas and about 50 in New York. The remainder of the cuts are from other offices around the country.

The action reduces Fidelity’s nationwide staff to about 6,850, about the same number of workers employed by the firm in mid-1987. Fidelity operates 53 U.S. offices and one in London.

Ernst said Fidelity’s Boston headquarters was most affected by the cuts since it was one of the company’s largest growth areas during its rapid expansion.

Since 1982, Fidelity increased its work force fourfold to about 7,800, while assets swelled from about $19 billion to a peak of about $85 billion dispersed among nearly 100 funds, including the extremely popular Magellan Fund.

The firm also branched to other ventures, such as real estate, a discount stock brokerage and institutional pension management.

Eric Kobren, a former Fidelity employee who publishes an independent newsletter that monitors the company, said Fidelity may be forced to reduce services and bring additional layoffs if business does not accelerate.

“This is a first step,” said Kobren. “I would not be surprised if we see further cuts after the IRA season if business stays at the same pace. This may be the first round of cuts, and they will digest it and see how they are doing then proceed with others.”

The company dismissed about 300 part-time and 50 full-time workers Feb. 11, including 50 in Boston and 125 each in Dallas and Salt Lake City.

Earlier this year, Fidelity laid off 32 workers at investment centers nationwide.

While mutual fund activity is less than one-third of last year’s bull market levels, there has been a steady resurgence since the crash, according to Kathryn Morrison, spokeswoman for the Washington-based Investment Company Institute.

Net mutual fund sales have risen from minus $5.8 billion in October to $1.8 billion in January, she said. The figures reflect total sales minus redemptions, said Morrison.

Morrison said about 2,000 funds are available.

In money market accounts nationwide, total assets have risen to about $280 billion in January from $241.3 billion in September.

“There’s $40 billion on the sidelines now waiting to see what happens with the market,” said Morrison. “There’s no shortage of assets out there; it’s just not in mutual funds like before.”

Investment companies such as Fidelity, which sell and manage mutual funds dealing in stocks, bonds and short-term financial instruments, were hurt not only by the October stock market crash but also by tax law changes.

Tax reforms limited the tax deductibility of individual retirement accounts, a prime source of money for mutual fund groups, as well as other changes that make mutual funds less attractive as investments.

“As a result, transaction volumes are significantly lower than in previous years,” the company said.