Fidelity's Advisor 401(k) Business Heats Up

Retirement savings rest squarely on shoulders of individuals

Fidelity Investments Advisor 401(k) business, a 401(k) platform that is sold by advisors to small and mid-sized businesses in which Fidelity provides a robust basket of services, grew 16% in 2005, to $13.5 billion in record-kept assets, up from $11.6 billion at the end of 2004. By the end of 2005 there were 2176 Fidelity Advisor 401(k) plans, including 380 new plans added in 2005.

With the Fidelity Advisor 401(k), Fidelity acts as record-keeper, administrator, trustee, and provides communications materials for advisors to use from initial meetings to presentation to the plan's sponsor, through enrollment, and on an ongoing basis with participants.

At a time when many companies cannot--or will not--make the contributions necessary to keep defined benefit (DB) plans going, and Social Security coverage for many Boomers looks questionable at best, defined contribution plans like 401(k)s are becoming a mainstay for retirement assets as well as an important perq for many companies that want to do what they can to attract the best employees they can get, and provide a way for executives--and employees--to save for retirement.

The whole retirement issue is reaching the proportions of a "perfect storm," says Dave Liebrock, executive VP of Fidelity Investments Institutional Services Company. "Sponsors are looking for help and guidance from an independent advisor." Of 250,000 small to mid-sized companies in the U.S. that offer 401(k)s, Fidelity estimates that 15,000 of those reviewed their plan in the last year. Of those Liebrock estimates that "7,500 went on to look for an advisor."

He says Fidelity Advisor 401(k) plans are being sold by advisors from wirehouse, regional, independent, and insurance broker/dealers. "Employers want a third-party to come in an analyze their plan," he says, adding that the Fidelity platform helps advisors benchmark a sponsor's plan versus companies in the same business and comparable size and number of employees. They want to make sure that enough employees choose to defer savings to their 401(k), and make sure participants are diversified.

Fidelity provides advisors with an analysis of a firm's 401(k) needs, benchmarks against peers, and an action plan, all of which advisors can present to the sponsor. Once a sponsor has signed up, Fidelity provides detailed communications to participants, including a "Retirement Checkup." Liebrock says, "Those that get a Retirement Checkup increase their deferral rate from 5.2% to 9.4%," on average. Fidelity will also provide personal reminders to a participant when, say, they turn 50 this year and now can add the $5,000 catch-up contribution to their deferral; or they only own two funds in their 401(k) account and need to be more diversified; or of they are participating in the 401(k) at a rate of 2%, but the employer matches the first 3%, Fidelity can let them know they're missing out on that 1% of employer match.

The Fidelity Advisor 401(k) platform includes 400 funds sponsors can choose from, as well as Fidelity's Freedom Funds that have age-appropriate asset allocations that are adjusted as retirement dates draw nearer. The platform includes other elements that encourage retirement saving and investing: Automatic enrollment where participants are "in" the plan unless the opt out; automatic increase whereby the percentage of income that is deferred increases each year; automatic rebalancing; Freedom Fund default, in which monies deferred would go into the age-appropriate Freedom Fund instead of into a money market type fund; and a Roth 401(k) option allowing post-tax deferrals. Liebrock says that all of the support Fidelity provides can save advisors a great deal of the time it would take them to pull this together on their own and believes that the platform's bundled services should be more cost-effective for sponsors, compared to sponsors that use third-party administrators.

For advisors who wish to enter this market but wonder whether there would be compliance issues raised by providing guidance to plan sponsors and participants, Liebrock says because these are qualified plans, ERISA rules prevail, and that for a qualified plan, advisors can give guidance to individuals, guidance is "paramount," and makes this distinction: Advice is "constant and continuous, and the only information that that individual uses in making a decision." Whereas within the Fidelity Advisor 401(k) platform, the advisor is giving guidance, but there is plenty of other information available as well, to help the individual make an informed decision.

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