The first rule for plan sponsors has always been to not put the plan in jeopardy. Thus, the primary issue facing sponsors wishing to provide investment advice to participants is whether they are creating liability and who specifically can provide the advice.

At first blush it would seem obvious for asset managers to provide advice on the funds in their plans. After all, brokerage firms such as Merrill Lynch are built on the concept of providing specific investment direction. Yet, in 401(k) plans things are not so straightforward. ERISA prohibits self-dealing. Thus, starting with Shearson Lehman (now the Salomon Smith Barney part of Citigroup) vendors have sought prohibited transaction exemptions (PTE) before providing advice.

From the early days of the advice industry (think 1995 or so) it has been this restriction that the startup advisory firms have been counting on. The perceived need for the DoL's blessing also drove the strategy for TCW -- which designed its early product around a DoL PTE.

Fidelity's response to this asset manager's dilemma to be one that no one considered early on. Basically, the fund giant is providing an asset allocation tool that provide very specific guidance, but guidance that fails the definition of advice. Call it "aggressive education." Not surprisingly,independent companies are stressing the needs for independence since their business model fails. At that point the competition comes down to features.

If Fidelity is able to play on this field it holds the trump cards of a free tool integrated natively into its NetBenefits Web offering and its recordkeeping systems. Portfolio Planner also offers neat tools such as its "Look Through" feature that lets participants analyze their portfolio holdings at the stock and sector level.

"Easiest isn't always the same as best," Deschenes, president of Emergent Advisors which owns 401k Forum, counters. "We are already working with clients that have products available though existing education solutions but are opting to include independent advice."

401k Forum is also moving to match Fidelity's Look Through feature and is readying a new version 4.0 of its product for a rollout in the near future.

There are also Fidelity clients, such as Merck, that choose one of the independents anyway. Merck declined to comment on why they chose Financial Engines, but other sponsors have shared some of the reasoning behind their decisions.

Joe Schuster, manager of qualified benefit plans at Compuware, has evaluated all the above products. Compuware became a Fidelity client at the end of last year. Schuster reports that the comparison was interesting, but that his company ultimately put the decision of whether to offer advice on hold.

"The one that had the best initial first impression was Financial Engines," Schuster says. "We also saw potential in 401k Forum and Portfolio Planner."

When looking for an advice product Schuster said he is looking for the product that can offer certain services or an independent approach. Participants want to be assured of the independence of the advice, but choosing the best overall product is what is most important, he said.

One important feature he will be looking for is the ability for the employee to initiate a transaction from the advice page right in the recordkeeping system.

"The ability to download the daily balances seamlessly and reallocate the funds with the press of a button. The one stop shop," is high on his wish list.

To date the only product that claims to have this feature working in a live product with real plan participants is Standard & Poor's with its Rational Investors installation on a SunGard system at Pan-American Life. Each of the other vendors report that they are working on this problem and one recordkeeper, TeamVest in Charlotte, is building an advice product around its recordkeeping.

At Amdahl, a key feature in a complete advice product was that participants be able to use the tool to allocate non-plan assets. At the time that it made its decision only Fidelity offered this service, says Peter Apor who manages the company's plans.

Even though Fidelity is the 401(k) market share leader, it controls less than one-third of the business. This means that the majority of sponsors will not be able to avail themselves of the "fee" bundled tool unless other bundled vendors follow Fidelity's lead.

Both Schuster and Apor say that the cost of the service was not an issue in their case. However, cost is an important issue for plan sponsors the 401kWire.com has spoken with off-the-record.

Independents typically charge a setup fee running from $15,000 to $50,000, according to sources who have seen the products. In addition they say that advisory firms are asking a per head fee of $15 to $25 dollars annually. Thus a Fortune 500 company with 50,000 employees could run an annual tab of one million dollars.

In the end today's issues; the independence of the advisor and how much liability there is, the cost of the package, the technological puzzle of tying the system to the recordkeeping system will be resolved.

It is also clear that this type of tool will be as ubiquitous in plans as daily valuation within the next two to three years. Indeed, the word out from sponsors attending Fidelity's large plan client meeting in Boston last week was that the issue is now a done deal -- all that is left are the details.

Just looking at the experience of Amdahl shows why. Before Portfolio Planner was added as a tab on its NetBenefits site, roughly 2,500 of the plan's 9,000 participants were invested entirely in the plan's money market fund. Another significant group of participants were keeping all or a large amount of their accounts in the plan's stable value fund, according to Apor.

Within six months of adding the allocation tool, the number of people in the money market fund dropped to 1800 in the first six months.

"The use of both the money market and stable funds shrank and the equity area blossomed," Apor reports. "The allocation to the international option more than doubled. We accomplished our diversification goals and increased their understanding."

Apor points out that the Fidelity tool is useful both because it provides asset allocation guidance and because it provides context that enables people to learn the why's of investing. For those who don't know it explains what a large cap fund is, for example.

Amdahl employees also seem to like the tool. Despite just one email announcement of the new tool, its use has steadily grown. Last September (or six months after the launch) 460 used the tool, this rose to 1,103 by April. Roughly 1,900 people -- or nearly a quarter of the participant base -- logged on in the September just ended.

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