Fidelity built its first building, above, on its Smithfield campus in 1998. A second, larger one was added in 2000. In 2007, expecting further growth, a 600,000-square-foot building was opened.

The Providence Journal / Kathy Borchers

Fidelity Investments projects an image of stability, its sage advisors eager to guide your retirement planning, its fund managers Wall Street savants.

But the recession that has felled so many financial services giants is also bruising Fidelity’s good name.

Over the past year, Fidelity’s long-term mutual funds have lost 40 percent of their value, according to the Financial Research Corp. in Boston.

Some of those losses reflect redemptions that simply shifted money to Fidelity’s money market funds. Its safer, fixed-income assets grew by 18 percent last year.

But that business provides far less income to Fidelity than mutual funds, where dizzying stock market declines have taken a toll. In all, the value of assets under management by Fidelity is down 21 percent, to $1.1 trillion, from December 2007, according to Lipper, a research firm.

“The part of the business that grew tends to be the lower margin product,” Jeff Tjornehoj, a senior analyst at Lipper, said.

That performance is worrisome not only to investors that entrusted Fidelity with their savings. In Rhode Island, Fidelity has become one of the state’s largest employers. This week, it began its second round of layoffs in less than a year.

Fidelity is privately owned, and it has declined repeated requests to provide details of its layoff plans and their potential impact on its sprawling Smithfield complex.

In all, the company says it is shedding 1,700 positions, two months after laying off 1,300. That is a 7-percent reduction of its 44,400-member work force.

“It wouldn’t surprise me if they go higher, because we’re markedly lower in terms of where the market is and what’s going on with the economy,” Jim Lowell, a former Fidelity employee and the editor of the independent Fidelity Investor newsletter, said.

John D. Muggeridge, general manager of Fidelity’s Rhode Island operations, referred questions to spokesman Vincent Loporchio. In an e-mail, Loporchio declined to disclose the planned layoffs in Rhode Island or project the year-end employment level.

“It is premature to comment on what employment levels will be in the future,” he said, “as we certainly have to evaluate all of our growth plans in the context of the worldwide economic downturn.”

There is ample evidence, however, that Fidelity’s Rhode Island operations are shrinking. Earlier this week, the company notified Smithfield Town Manager Dennis G. Finlay about new layoffs, he said. Around 80 Fidelity employees in Smithfield were reported to have lost their jobs late last year.

“We’re concerned,” Michael J. Flynn, vice president of the Town Council, said yesterday. “We’d like to see Fidelity booming up there.”

For a while, it seemed like booming was the company’s only speed.

In 1998, generous financial incentives helped persuade Fidelity to open its first office in Smithfield, a 250,000-square-foot building constructed on hundreds of acres of state-owned land. Two years later, it opened a second office tower, a 275,000-square-foot structure that brought its total investment to $100 million.

In August, coming off a strong 2007, Fidelity completed yet another office in Smithfield, this one the tallest office building in the state.

The nearly 600,000-square-foot structure was seen as a symbol of Fidelity’s growth plans. Before it even opened, Muggeridge said he envisioned “plenty of jobs open here for a long time to come.”

In Rhode Island, Fidelity runs Pyramis Global Advisors, an equity management firm for corporate and public retirement funds and endowments; Fidelity Investments Institutional Services, which provides investment management services; and Personal and Workplace Investing, which serves retail and workplace savings plans and investors.

At least 1,400 employees were expected to occupy the new building, including Boston-based staff and refugees from Fidelity’s office in the American Express building in Providence.

Now, however, there may be some vacant cubicles.

Already, the company’s Rhode Island work force has dropped to 2,300 from its high of 2,500. The majority are based in Smithfield, with about 10 employees at an investor center in the GTECH building in Providence. There are 11,000 Fidelity employees in Massachusetts.

Fidelity has blamed the layoffs on the national economic downturn, which has thrashed the hundreds of mutual funds that generate the bulk of its revenue.

“These layoffs are part of the plan our executives announced to deal with the unprecedented worldwide economic downturn which continues to persist in 2009,” Loporchio, the Fidelity spokesman, said. “Fidelity and businesses across all industries have had to examine their operations and make adjustments to deal with these extraordinary events.”

But Lowell, the Fidelity Investor publisher, said the company planned to cut costs before the economy soured. “If past is prologue, Fidelity ends up hiring more people than it lays off,” he said. “But that might not be a process that repeats itself this time.”

Although Fidelity may grow Pyramis, it is unlikely to need more staff handling handling 401(k) investments, Lowell said. This year, he said, the impact of layoffs, suspended employer retirement fund contributions and employee “shell-shock” from heavy loses will likely slow the growth in 401(k) assets.

Some analysts, who remember Fidelity’s quick recovery after the dot-com bust, remain bullish about the company.

Fidelity has made itself somewhat less vulnerable to stock market declines, building its employee benefit management and individual retirement planning businesses.

The company’s recent setbacks mirror declines throughout the industry. Rhode Island has lost 2,000 financial services jobs since 2007.

“It’s really hard for other competitors to push into their space. They are such a widely recognized brand,” Peter Welgoss, a research analyst for Financial Research Corp., said. “It’d take a lot to unseat them.”

bgedan@projo.com