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Tuesday, August 3, 1999 Advice: The Rollout Tony Pennino assisted with this portion of the article.
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. 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." Printed from: MFWire.com/story.asp?s=24492 Copyright 1999, InvestmentWires, Inc. All Rights Reserved |