Tony Pennino assisted with this portion of the article.

The Players

401kForum Based in San Francisco and now reorganized as a unit of Emergent Advisors. The firm is located in the SOMA district of San Francisco -- an area associated with hot dot com firms. Its founder, Drake Mosier, came from Smith Barney where he was familiar with the broker's "TRAK" program. Ted Benna, widely noted as the "father" of 401(k) sits on the company's board.

Financial Engines A prototype Silicon Valley tech startup of the Nineties. Located in Palo Alto just down the road from Stanford University and the offices of Profs William Sharpe and Joseph Grundfest. The pair reportely hatched the concept for the idea in a Stanford cafeteria. CEO Jeff Maggioncalda is a twenty-something with a Stanford MBA. The company also boasts a high profile board featuring Olena Berg Lacy, who formerly headed the PWBA.

Rational Investors Founded by Francois Gadenne and Ben Williams. CEO Gadenne hails from BankBoston and Arthur D. Little where he was team leader of the group that developed a weather forecasting expert system for NASA following the loss of the Challenger space shuttle. Williams, programmer, developed the DOS memory extender in his previous job. The pair sold the Rational to Standard & Poor's, a unit of McGraw-Hill, this year.

Ibbotson Associates Founded by Yale professor Roger Ibbotson, the Chicago-based firm has a long track record as a consultant to the pension and investment community. First moved into the advice market as the developer of the advice model for TCW. Has since provided its capabilities to education firms including Weisenberger and Newkirk.

The Rest of the Field TeamVest A Charlotte, NC-based administrator and recordkeeper serving the small plan market and founded by executives from TrustMark. Recently formed an alliance with Intuit to provide advice through Web portals. Investment Technologies A New York-based firm founded by Brian Rom in 1986. IT announced its entry into the 401(k) advice area in 1998. DirectAdvice A Hartford, CT-based startup that initially targeted the retail investor as Mentum. It has raised money from Japanese investor SoftBank Group and is said to be eyeing the 401(k) market. It is also rumored to be working with E*Trade, which has also raised money from SoftBank. AdvisorNet, LLC Owned by Chicago-based Marquette Associates this service was announced at the end of 1998.

If 1996 and 1997 were the year of planning, then 1998 was the year that these products started to hit the street. Early adopters include Fujitsu and the SouthWest Airlines Pilot Association who signed on with 401k Forum and Alza Corp. which served as a beta site for Financial Engines.

What become apparent early on, though, was that few plan sponsors are willing to pay $30 to $50 per year for their employees to use one of these services.

Another hurdle for plan sponsors was their concern that they not increase their own fiduciary liability by offering one of these products.

The solution to these issues was for the advice firms to build alliances with bundled vendors to distribute the service to their plan sponsor clients. Key alliances were made by Financial Engines (Hewitt Associates, SSgA, Merrill Lynch), 401k Forum (Aetna, Hewitt Associates, Credit Suisse Asset Management), and Rational Investors (Pan American Life).

These alliances are good news in the opinion of Michael Gazala, research director at Forrester Research, Inc. (a technology consulting firm). He believes that they "demonstrate that 401(k) vendors have put their stamp of approval on advice. This is definitely a plus," he told the MFWire.com. "And since the advice-givers like Financial Engines and 401k Forum have knocked out multiple alliance deals with different plan providers, they are not in danger of losing their independence."

Steve Deschenes, president & coo at 401k Forum sees alliances as just one mode of distribution among many. He even forecasts that advice might be something that an individual participant could sign on for directly, but cautions that selling advice at the plan sponsor level made it more reasonable.

"This is the beginning of something pretty profound," contends Jeff Maggioncalda, president and ceo of Financial Engines. "Within six months, over 50% of the top ten vendors will have relationships with advice firms. In fact, that will extend down the line to top 25. It will be extremely common for 401(k) providers to partner with third party advice givers. The driver here is not that sponsors have realized that employees want advice. They already knew this. But sponsors now realize that advice is the good and safe thing to do." Optimistically, he added that the trend is moving in the right direction. "The question is no longer is it too risky to offer advice, but whether it is too risky not to," say Maggioncalda.

Still, even as the number of alliances has mushroomed, and advice has become a part of the 401(k) request-for-proposal checklist, few plan sponsors are yet offering the service to clients.

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In other news today, Standard & Poor's announced that it had completed its acquisition of Rational Investors yesterday. "The Rational Investors acquisition positions Standard & Poor's as the leading source of comprehensive investment advice in the rapidly growing 401(k) market. With Rational Investor's superior technology, Standard & Poor's can build on its reputation to provide trusted, comprehensive information and advice." 

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