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Fidelity Shares Survey Results, Settles with SEC

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Fidelity Investments and National Financial have released new research on Individual Retirement Account ownership. The research shows that, despite 2007 being a year of financial and economic fluctuation, six out of 10 IRA owners (60 percent) either have already made a contribution to their IRA for 2007 or are planning to do so before the April 15, 2008, deadline.

The survey also found that one-third (32 percent) of respondents saving for retirement also increased the amount they are saving in their IRA over the last 12 months. This shows that many investors are not allowing issues such as stock market volatility, the real estate market decline or rising oil and gas prices to alter their retirement savings practices.

According to the research, which surveyed some 1,000 Americans, investors working with an advisor were more apt to open, contribute to or consider IRAs as part of their retirement readiness program — 71 percent vs. 41 percent.

“Advisors can play an integral role in helping clients maximize their retirement savings by educating them about the benefits associated with each type of IRA and the critical role these tax-advantaged accounts play in a holistic financial plan,” explains Jody Meth, executive vice president, National Financial.

In a separate study, Fidelity Investments found that a 65-year-old couple retiring in 2008 will need approximately $225,000 to cover medical costs in retirement. This figure represents a jump of nearly 5 percent over the 2007 estimate of $215,000. Since the estimate was first calculated in 2002, the number has risen more than 40 percent, with an average annual increase of nearly 6 percent.

The Fidelity estimate assumes individuals do not have employer-sponsored retiree health care coverage and includes expenses associated with Medicare Part B and D premiums (30 percent), Medicare cost-sharing provisions (about 40 percent) and prescription drug out-of-pocket costs (roughly 30 percent). It does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.

Fidelity considered the impact a $225,000 health care liability would have on a retiree’s Social Security benefit and found that about 50 percent of his or her pre-tax Social Security benefit (of someone earning $60,000) would be used to pay for personal health care expenses in the next 17-19 years.

In other news, Fidelity agreed to pay an $8 million civil penalty as part of a final settlement with the SEC on March 5 regarding the regulatory investigation into the acceptance of gifts, gratuities and business entertainment that took place several years ago. The settlement relates to findings involving Fidelity and 13 employees, including former portfolio manager Peter Lynch, now an executive with Fidelity.

“In the three years since this misconduct came to light, Fidelity has taken a number of remedial actions to back up its commitment that these types of activities shall not recur, including disciplining the individuals involved,” the company explains in a statement. “None of the individuals cited by the SEC remain on the trading desk and most of them are no longer with the firm. Also, as the SEC noted in today’s settlement, we enhanced appropriate policies, added new management oversight on the trading desk and conducted extensive training with employees.”

Additionally, Fidelity says, it agreed in December 2006 to make a one-time payment of $42 million to the funds and an additional payment to other accounts Fidelity advises as a penalty for this same misconduct. In agreeing to the settlement with the SEC, Fidelity states, it “neither admits nor denies the findings in the SEC’s order. And, although the order makes no finding of financial harm to our shareholders or our funds, we do recognize the seriousness of the misconduct found by the SEC.”

Fidelity Investments also has announced the availability of Fidelity Advisor Mega Cap Stock Fund (Class A, T, B, C and Institutional). With the addition of this fund, Fidelity now offers advisors at institutions, such as brokerage firms, banks and insurance companies, access to a family of more than 115 Advisor funds.

“We launched the Fidelity Advisor Mega Cap Stock Fund to give advisors the ability to provide their clients with dedicated mega-cap exposure that can complement the broader large-cap exposure they’re currently invested in,” says Marty Willis, executive vice president, Fidelity Investments Institutional Services Company. “The addition of Fidelity Advisor Mega Cap Stock Fund further reinforces Fidelity’s commitment to providing advisors with the industry’s broadest advisor-sold fund family.”

Fidelity also introduced VIP Emerging Markets Portfolio to its lineup of Variable Insurance Products (VIP) portfolios. “We’ve found that advisors are taking a long-term view with emerging markets investments,” says Willis. “By allocating a portion of their clients’ portfolios in a dedicated emerging markets fund, advisors can help their clients realize the potential for increased returns and the benefits of a more diversified portfolio of international investments.”

Building a Healthier Retirement

Fidelity recommends the following five steps for investors and advisors when tackling the issue of medical expenses:o Create a retirement plan;o Encourage investors to save early and maximize opportunities, including health savings accounts (or HSAs);o Have investors assess their health status and become smarter health-care consumers; o Get details on any employer-sponsored medical coverage; and o Work with investors to analyze the financial impact of their expected health-care costs on anticipated Social Security income.

Janet Levaux is the managing editor of Research; reach her at [email protected]