Fidelity, one of the world’s biggest and best known money managers, has seen its fund business shrink to generate less than half its revenue, and it expects this to continue.

Bob Reynolds, Fidelity’s chief operating officer, told the Financial Times that Fidelity generated more than half its revenue from the processing and administration of payroll, health and retirement plans.

This low-margin business will provide greater growth than the money management business, he said.

Fidelity, which manages $1,500bn globally, had been diversifying its business, he said, as well as shoring up its money management unit following a slide in performance.

It has hired 90 analysts in the past year, doubling its research staff, restructuring the unit and setting up a new arm to manage institutional money, in a series of moves that represent probably its biggest change in the past 20 years.

Mr Reynolds said regulatory changes such as the rule on fair disclosure – Reg FD – and the rise of hedge funds meant it was no longer as easy to maintain a competitive edge in research. Fidelity has broken with its tradition by going outside the company to recruit analysts and fund managers.

The 60-year-old firm acted after it was overtaken in size by its rivals, first Capital Group’s American Funds and then Vanguard. This year, its fund performance has lifted, and inflows for the year to date are $11bn, well ahead of last year. However, its inflows are still only in fourth place, behind Barclays Global Investors.

The group’s rapidly growing brokerage in recent months has quietly overtaken Merrill Lynch to become the biggest in the US, and its related fund processing business is growing rapidly.

Mr Reynolds said: “The heart of the company might be in money management, but half the [$11bn] revenue comes from processing, and that is growing at a faster rate than money management. . .  Processing is a more consistent business over time. It doesn’t have the volatility that money management business does.”

Fidelity has also struck deals with “a lot” of Wall Street banks to pay for research separately from trading, he said. It reached agreements first with Lehman Brothers, then Deutsche Bank, and has followed with many more, said Mr Reynolds.

Usually the cost of research and trading are “bundled” together in a single transaction fee.

“We want to unbundle the cost of trading from the cost of research, because we want to trade with the people who are doing the best trading, and we want to buy research from the people doing the best research, and they are not always the same people.”

However, Mr Reynolds said the move would not save costs, and Fidelity expected to pay the same in total.