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As investment advisors increasingly play a larger role in the distribution of retirement plans, retirement plan providers and the companies that partner with advisors to sell and service retirement plans are courting advisors like never before with new products and services.

Take Fidelity Investments. Sales of 401(k) plans through Fidelity-affiliated advisors have jumped 38% so far this year over 2004, mainly because Fidelity is now offering advisors a platform that includes proprietary and non-proprietary funds, says Dave Librock, executive VP and head of Fidelity’s retirement business. Fidelity now offers advisors 230 outside funds from more than 31 different fund families. “We have an open architecture platform,” boasts Librock, “and a much more integrated product offering.” Fidelity’s platform is built around trustee, administration, recordkeeping, and communication services, Librock says.

Another Boston firm–MFS Retirement Services Inc.–is also betting that an open-architecture platform will attract more business from advisors. But MFS is going even further by equalizing their commissions on sales of proprietary and non-proprietary funds. Marty Beaulieu, director of global distribution at MFS, says that until a couple of years ago, single-family fund companies could compete, but today, “the marketplace is saying we want multiple fund choice, better transparency and disclosure, and we want to understand how our advisors are getting paid.” Beaulieu says that by offering equalized commissions, MFS is better able to “communicate” an advisor’s compensation. Due to increased scrutiny from regulators on fee disclosure, “fund companies like us have pushed hard on the transparency and disclosure” of various fees on retail funds as well as those offered in retirement plans, he says.

Beaulieu says that MFS’s good service reputation has aided its fortunes, as has its sales force. “That consistency in distribution has helped us,” he says, but MFS’s weakness was the fact that “we really didn’t have a product offering that plan sponsors in our marketplace were excited about.” The combination of an open-architecture platform, the new commission structure, and the fact that MFS has “simplified the pricing mechanism around administrative fees,” he says, should be a winning combination.

MFS’s parent company, Canadian-based SunLife Financial, is using its deep pockets and know-how to help MFS expand its retirement business. “SunLife has the No. 1 market share position in Canada–about 45% of DC/401(k) type products,” says Beaulieu, who points out that SunLife’s CEO, a former pension actuary, believes that if MFS “expands [its] products and distribution, and repositions the retirement company as more of an open architecture, we should be able to grow the business.” MFS Retirement Services now has more than $14 billion in retirement assets under recordkeeping management, and does business with 6,800 retirement plan sponsors that have 1 million participants.

Equal Commissions Good?

Librock of Fidelity has his doubts about whether providing equalized commissions is necessary. “If you think you need [to offer level] compensation because you believe there is a conflict of interest, then you’re also acting as a fiduciary–giving advice,” he says. “If you’re giving advice, you can’t be receiving a 12b-1 fee.” He says Fidelity has created I-share class funds in both Fidelity funds and non-proprietary funds–that have no 12b-1 fees. “The advisor can negotiate the compensation directly with the plan sponsor,” he says, and “the fees will show up on the participant’s statement.” To Librock, offering an I-share class is a “cleaner way” to go than equal compensation because “if you aren’t giving advice and giving guidance, there are no conflicts as long as you have disclosed what your compensation is and what you’re receiving in compensation.”

Monica Kirgan, VP of individual investor business at the Principal Financial Group, says offering an open-architecture platform is definitely a hot trend. “Employers have moved more away from their primary decision-making on retirement plans in choosing the investment lineup,” she says. “We’re seeing more of an open-architecture investment platform being offered.” But a broader choice of investment options means that participants, employers, and intermediaries are looking for guidance in choosing the best investment, she says. This is providing a great opportunity for advisors and firms like Principal to step in and “assist employers at the worksite to help employees understand their choices.”

Principal is offering such assistance to plan sponsors and intermediaries through a new program called Retire Secure, in which retirement specialists from Principal meet with employees one-on-one to help them with investment selections. Principal has also developed a program called Step Ahead, which helps employees choose a deferral percentage for their 401(k) plan, and allows them to annually increase the deferral percentage to reach their target rate. If a plan participant “wants to initially start at deferring 6%, but knows that their ultimate goal is 10%, Step Ahead will allow them to increase their deferral by a percentage point each year for X number of years,” Kirgan says. About 25% of the participants are choosing the Step Ahead feature, she says, with a four-year duration and a 1% increased deferral rate each year (see the article on page 126 for a discussion on what participants need from plan providers).

How Suite It Is

Another trend Kirgan has noticed among plan sponsors is that they are offering employees bundled benefits. “To keep administrative costs down and make it easier to administer several plans doing business with one company, [plan sponsors] will provide DB, DC, and non-qualified [plans] as a bundled offering,” she says. Principal is also anxious to see how the Roth 401(k) will fare once it becomes available in January. The initial feedback that Principal has gotten so far from plan sponsors and intermediaries is that “they don’t foresee a huge uptake” in the marketplace, she says. “But time will tell.”

To help its affiliated advisors service and sell more retirement plans, Fidelity recently launched a Web site called Fidelity Plan Sponsor Link that allows advisors to customize a retirement plan proposal for plan sponsors. The site also allows the advisor to share documents with the plan sponsor. “There are documents that need to be shared by the advisor, the plan sponsor, and Fidelity,” Librock says. Instead of passing the documents back and forth through the mail, he says, the documents can be signed through an E-signature online. The site can also show “project plans from an implementation standpoint,” he says. “Think about a sales process where an advisor is talking to a plan sponsor and the advisor might be mailing them or showing them a proposal.” The advisor may have documents he wants to provide to the plan sponsor. “From that perspective, the advisor can customize the Web site for the plan sponsor with [the plan sponsor's] logo, [present] those documents, call the plan sponsor and say, ‘Here is the proposal and let’s both get on the Web site and review the services I’ll provide.’”

The Investment Company Institute (ICI) and the Employee Benefits Research Institute (EBRI) released a study recently that showed a huge portion of Americans who maintained 401(k) accounts from 1999 to 2004 saw their balances increase by 36%–despite weathering the horrendous bear market. EBRI and ICI tapped their 401(k) database, the largest of its kind, and found that average account balances jumped to $91,042 at year-end 2004 from $67,016 at year-end 1999 for those who maintained accounts for the entire five-year period.

For a complete directory of retirement planning services and their offerings, please click here

Washington Bureau Chief Melanie Waddell can be reached at [email protected].

Research Editor Liana Roberts can be reached at [email protected].


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