Fidelity to Create Two Separate Boards

The move was prompted by the firm's plans for further expansion of its portfolio of funds, as well as concerns about the growing complexity of the investment strategies being incorporated into its mutual funds, officials at the Boston money-management firm said. The change will result in a board to oversee the firm's equity and high-yield funds, and another to monitor the firm's investment-grade bonds, money-market funds and asset-allocation funds.

It's unclear what role Fidelity Chairman and Chief Executive Edward C. Johnson III will play on the new boards. Johnson has been criticized for his dual roles of chairing the board, which is charged with looking out for the interests of fund shareholders, and running the investment firm, which has a duty to stakeholders of the management company.

Fidelity expects to add directors to fill the two new boards, but it isn't clear how many people the firm expects to recruit, or whether any current directors will leave as a result of the reorganization.

Fidelity mutual fund shareholders are expected to vote on the move through their individual funds next year.

All mutual funds have a board of directors, typically known as trustees, who are responsible for an array of duties, including hiring and firing fund managers, setting fees and closing bloated funds. An investment firm may have anywhere from one to dozens of boards overseeing its funds, and each board may be responsible for anywhere from a handful to several hundred fund products.

Fidelity's board, which oversees close to 370 funds, is considered to be at the high end of the scale. By contrast, Vanguard's mutual fund board oversees 143 funds, while the average director at American Funds Inc. oversees just a handful of funds.

Fund-tracking firm Morningstar Inc. has a "C" rating on Fidelity's mutual fund board, in part due to concerns about its ability to pay attention to all of its funds. In a recent report, Morningstar analysts said they were "not convinced that this board diligently oversees each fund individually."

Meanwhile, Fidelity's portfolio of mutual funds is on track to grow further. Last week, the firm created 11 new funds to target investors looking for steady income in retirement.

Also, the investments that go into mutual funds are increasingly complex, creating additional oversight responsibilities for mutual fund directors.