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NYLIM Offers Plan Sponsors Advice From Morningstar

NYLIM Retirement Plan Services of Parsippany, N.J., announced a new service for 401(k) plan providers last week that will help them select and monitor mutual funds in their retirement plans. Two key aspects of the new offering, Portfolio Complete, are that the firm's partner in the project, Morningstar of Chicago, will assume fiduciary responsibility and that it is designed to aid plan sponsors rather than individual investors.

CitiStreet of Quincy, Mass., a joint venture between Citigroup of New York and State Street Corp. of Boston, began offering a similar service in June [see MFMN 6/17/02].

In light of the Department of Labor's (DOL) recent clarification on third-party investment advice in retirement plans, NYLIM executives said they expected additional plan providers to offer advice.

When Citigroup and State Street announced CitiStreet, they said it was the first time a plan provider made advice directly available to participants. They said they were able to create CitiStreet because of a Dec. 14 DOL advisory letter allowing financial institutions to provide advice directly to retirement plan participants as long as it is done by an independent advisory firm.

Patrick Reinkemeyer, president of Morningstar Institutional Investment Consulting, agreed the DOL's clarification should make sponsors more comfortable offering advice directly to participants since it allows them to place fiduciary responsibility squarely on the shoulders of an investment management firm.

Morningstar Associates, an investment advisor and independent investment consultant, is the entity assuming fiduciary liability. Citistreet, meanwhile, relies on investment advice from Financial Engines of Palo Alto, Calif.

"The ruling opens up the way for advice to be offered more freely," Reinkemeyer said.

"Many plan sponsors don't have a third party taking on the fiduciary risk. In fact, most bear it themselves because hiring independent consultants is expensive," said Donald Salama, managing director and head of retirement plan services sales and marketing at NYLIM. This responsibility precludes many from offering advice, Salama said.

"If sponsors are given the choice of a retirement plan with the option to offer advice and have a third party assume responsibility for offering that advice, I am absolutely certain they'll take it," Salama said.

Joshua Dietch, a consultant with Cerulli Associates of Boston, said many plan sponsors do, in fact, shift fiduciary risk to third-party retirement plan consultants. "What makes New York Life's and CitiStreet's services unique is that the advice and fiduciary responsibility are bundled into the retirement platform," Dietch said.

CitiStreet has had great success in less than two months of operation, according to a spokesman for the firm. The firm has 10 major corporations with 250,000 plan participants signed up and expects to have 20 additional contracts signed by year-end to reach another 750,000 participants.

Although Portfolio Complete's tactic of targeting plan sponsors is a different approach than CitiStreet's, which is aimed at the individual investor, NYLIM is rounding out its offering with another, separate service to reach these individual investors, Morningstar's ClearFuture. NYLIM has made this available to the 1,500 companies it serves since February.

As to why NYLIM decided to market Portfolio Complete to plan sponsors rather than individual investors, Salama said this is a group that is often overlooked.

"Plan sponsors don't receive enough advice themselves to select their initial fund lineup and monitor it," Salama said. "We're filling that gap."

Katie Libbe, vice president of marketing and products with American Express Retirement Services of Minneapolis, said she could understand why plan sponsors might want to use a service like CitiStreet, Portfolio Complete or ClearFuture. But as to whether or not investors will actually use that advice is another matter, she said, noting that only about 4% of investors actually make use of standalone, online advice.