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), 401
k 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 401
k 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 401
k 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.
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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