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Rating:Check Mate ...? Not Rated 3.0 Email Routing List Email & Route  Print Print
Monday, October 04, 1999

Check Mate ...?

Reported by Sean Hanna, Editor in Chief

The logjam on advice has broken. Plan sponsors of large companies, including Raytheon, Shell Oil, Amdahl, Cisco Systems, Merk & Company,  and Dole Foods have all implemented Internet-based tools that assist plan participants in allocating their assets down to the security level. The 401kWire.com has also learned that AT&T -- sponsor of one of the nation's largest plans -- is in the final stages of evaluating its solution. Meanwhile, the majority of bundled vendors are now in the final stages of determining what their own solutions to this problem will be.

Surprisingly, the early leader in the efforts to implement these tools is Fidelity Investments Retirement Services Company (FIRSCo). The Boston fund giant has taken the early lead in implementation against third-party advisors including: Financial Engines, Emergent Advisors (401k Forum), Standard & Poor's (Rational Investors), and Ibbotson Associates. Meanwhile, Morningstar, DirectAdvice.com, and TeamVest are making serious noises about entering the fray. Also on the field are a host of lesser known startups including: Investment Technologies, ASLO.com, AdvisorNet.com and 1-800-Mutuals.

Nearly two years ago FIRSCo debuted its Portfolio Planner product in a New York City media meeting. Since then, it has been criticized for offering a solution that is "bundled". Critics have maintained that sponsors should use solutions originating from a third-party advisor to limit their fiduciary liabilities.

Fidelity responds it is offering education not advice since Portfolio Planner fails the tests laid out by the DoL's Interpretive Bulletin on advice. A key part of its educational package though, is a tool which provides specific allocations at the investment option level.

So far, more than one hundred new clients have have implemented Portfolio Planner, says Jane Jamieson, executive vice president in Fidelity's Institutional Retirement Group. She reports that Fidelity's pipeline for new implementations is "filled" and that the fund company expects to add 20 additional clients to the system a month.

Amdahl -- a information technology software and technology company based in Sunnyvale, California -- was the first company to roll out the tool in July of 1998. (Ironically, Amdahl is a unit of Fujitsu of Japan. Fujitsu Computer Products, another subsidiary is the highest profile client of 401k Forum).

Peter Apor, manager of savings programs at Amdahl, feels that the fiduciary issues are not a major concern after more than a year using the tool. He pointed out that the tool is educational not advice and that employees understand the difference.

"Employees are going to do their own homework," he told the 401kWire.com. "The decision is theirs as to whether to implement it."

Amdahl took additional comfort in not being a pure bundled client of Fidelity. The $600 million, 9,000 participant plan is administered by Fidelity, but only two (Magellan and a money market fund) of its eight investment options are provided by Fidelity.

Apor says that the company did look at 401k Forum, but that it chose Fidelity because at that time Forum did not offer tools on non-plan assets while Fidelity did.

Other plans using the Portfolio Planner today include: Ford Motors, Shell Oil, Raytheon, and Cisco Systems. AT&T is "waiting for approval" to add the option to its $10.5 billion plan.

Where does this leave companies such as Financial Engines, Emergent Advisors and Standard & Poor's and the rest of the field?

Steve Deschenes, president of Emergent Advisors for one believes the acceptance of Fidelity's Portfolio Planner will have a positive impact on his business.

"There is going to be a lot of turnover in advice providers." explains Deschenes. "Over time there will be questions raised advice coming from the same place the administration is coming from."

Major clients of 401kForum include: Fujitsu, Dole Foods, The Southwest Airlines Pilots' Association, and Blue Shield of California. It also has alliances with First Union, Credit Suisse, Aetna Life, and Arthur Andersen. Deschenes added that it has three additional clients which he declined to name.

David Blitzer, vice president of Standard & Poor's had the same argument, "The answer here is that the fees are leveled so that Fidelity does not care what fund you put your money in but at the end of the day they are still promoting."

S&P's Rational Investors unit is used by Pan-American Life to provide advice which is integrated into the bundled vendor's SunGard-based recordkeeping platform. So far about 70,000 participants use the service.

Financial Engines, which declined to comment on the story, announced its largest client -- Merck -- last week. At that time Brian Samuels hinted that the advice software firm would have a handful more major announcements in the coming weeks. A phone-based version of its platform is offered by SSgA to clients, including Nissan Motors, and it has alliances with Merrill Lynch, Scudder, Northern Trust, and Hewitt Associates (which also offers 401k Forum).

Yet, Ernst & Young, one of Financial Engine's earliest alliance partners is now evaluating alternative advisory firms, according to sources close to the process.

Other administrators currently evaluating partnerships include: American Express Financial Advisors, Gallagher Abow, Inc., Great West Life and Annuity, and Invesco, which may announce its partner in as little as a month.

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