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Fidelity reports 57% boost in 401(k) sales as it sets its sights on smaller plans and advisors

Heading downmarket, the Boston-based firm is trying to muscle in on boutique providers

Wednesday, February 29, 2012 – 5:00 AM by Hilary Johnson
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Mike Harger: What we’re hearing is, 'We like your commitment to the marketplace.'

Fidelity Investments is touting the headway it’s making in winning the small to midsize 401(k) markets, even amid stiff competition. The provider reported last week that it saw a 57% increase in plan sales to sponsors with retirement assets of less than $50 million.

In 2011, Fidelity sold more than 1,400 plans totaling $6.6 billion in assets. See: Fidelity sees potential 401(k) rollover magnet for RIAs: retirement income plans.

Still, a more nuanced story could well be hidden in the positive spin, since Fidelity’s numbers represent gross sales, and as such don’t indicate how much business was lost to competitors. Fidelity also faces consistent competition from smaller providers who are known in the smaller market for specialized and attentive service. See: Fidelity, Vanguard and Schwab have top 401(k) brands but plan sponsors like the service of off-brands better, study shows.

Even taken with a grain or two of salt, however, the Fidelity news shows the commitment it has made to smaller to midsize customers that are often brought on board through the advisor channel. Fidelity is attracted by the growth potential in serving these customers.

“It’s a significant opportunity for growth,” says Ted Madden, senior vice president at Fidelity, who works with the small to midsize 401(k) market. “There are many companies, many opportunities for great clients in this part of the market.”

Mike Harger, a senior vice president at Fidelity, who works primarily with advisors, says that Fidelity is “seeing growth across the spectrum, from advisors and plan sponsors.”

The small stuff

“What we’re hearing,” Harger continues, is “'We like your commitment to the marketplace.’” He says the sales success last year reflects a coordinated effort by Fidelity. “The sales team we have in place, the marketing, talking with advisors and other plan sponsors, it all came together. We think we have a very good organization, and both advisors and plan sponsors saw the value of that.”

Harger adds that sales in the smaller-plan market have been robust in 2012 as well, without providing specifics.

Fidelity has suffered outflows in the larger segment of the defined-contribution market, judging from industry scuttlebutt and from records uncovered by Reuters in the summer of 2010.

Label appeal

As such, Fidelity is smart to leverage its undeniable brand recognition and appeal to advisors and small businesses, says Mike Alfred, co-founder and CEO of BrightScope Inc. See: How BrightScope is using technology to create order in a messy 401(k) market.

“Fidelity is focusing down-market because they’re experiencing more pressure in the large market,” he says.

“The brand is still respected, and advisors and small businesses will respond, knowing that Fidelity is going to give them the time of day. I don’t see any reason why they shouldn’t have success there. Fidelity is realizing that there’s a lot of value in cultivating that end of the market.”

Still, Fidelity will have to be nimble and attentive to keep business, since it competes with firms such as Ascensus and Milliman Inc., providers known for good service to the smaller 401(K) market. A Cogent Research survey in July showed that the smaller customers often preferred the specialized service available from smaller providers.

“The bigger sandbox has gotten smaller, there’s more competition and less opportunity. I think the small to midsize people still like the hands-on approach from the smaller independent record keeper, but do I think Fidelity has an opportunity? Sure, some people will always defer to the bigger name,” says James Holland, director of business development at Millennium Investment and Retirement Advisors LLC, a pension consulting firm that consulted on more than $2 billion in 401(k) assets last year.

“There are more smaller plans than big plans, and if the big plans are going away, then Fidelity has to go somewhere. There’s more opportunity in the smaller space, and Fidelity has that name recognition.”


Linda York, research director at Cogent, agrees with BrightScope’s Alfred that the Fidelity name carries weight, and says the Boston-based firm may very well be making significant inroads.

The 2011 sales Fidelity cites represent “a very healthy jump,” she says. “What that shows is they’re able to capitalize on their potential. Plan sponsors are aware of Fidelity, and they are likely to consider them. Fidelity has been able to convert that potential into actual business.”

“In terms of retention of the business,” York continues, “they may need to focus a little bit more on some of the areas where competitors are able to give a little more attention to the smaller plans. They’ve won the business, [but] they’ll need to make sure they keep the momentum to retain it.”

Targeting advisors

Fidelity also needs to keep an eye on its largest competitors, who like it are vying for the smaller-plan segment.

Vanguard launched its Retirement Plan Services for small business last fall, a new bundled product, with Ascensus providing the record keeping, for the under $20 million small-business. Vanguard provides the new service directly to sponsors of 401(k) and profit-sharing plans as well as to advisors who sell fee-based 401(k) plans.

Before launching, Vanguard used to receive about 1,000 calls a year asking for help from advisors and smaller plan sponsors, according to Kathy Fuertes, head of sales. In the few months since the launch, she says, it has received as many.

“We see the business growing,” Fuertes says. “We’ve got quite a few plans signed on, and a very steady pipeline of plans that are implementing.”

Vanguard declines to provide sales figures.

“There’s been a lot of interest from the advisor community,” she adds. “Over half of the inquiries we’ve received have been from fee-based advisors looking for a solution for their clients.”

Schwab also does not release sales figures, but for the under $20-million small business- and advisor-led plan market, it is staying with its strategy of supporting independent record keepers and advisors with trust and custody services. In the over-$20 million to largest markets, earlier this year it launched a new offering called Schwab Index Advantage, which uses low-cost index funds and GuidedChoice Asset Management Inc. to attract customers who desire a lower-cost retirement option.

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