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Fido Unveils $70 Million Retirement Product

NEW YORK -- The face of distribution for retirement savings accounts is changing, as Fidelity Investments on Wednesday launched a $70 million product initiative aimed at helping Baby Boomers better manage their finances while making the transition from the workplace to retirement.

The groundbreaking new service, Fidelity Retirement Income Advantage, looks to capitalize on the 76 million Boomers nationwide, many of whom are hard-pressed to determine how much cash they will need after they've exhausted their last corporate paycheck. Given that a bulk of the U.S. population is gearing up for retirement, servicing the client requires "new thinking" in the fund industry, the company said at a press conference here. The move suggests that investors can expect to see a number of new retirement products being unveiled as more and more Boomers retire.

Indeed, the number of people over the age of 65 is expected to climb to nearly 40 million by the year 2010 and nearly 70 million by 2030, according to the Administration for Aging. And according to a Fidelity slideshow presentation, today's retirees will be responsible for almost 60% of their income, with 36% coming from their earned income and another 23% from their own investments.

"The challenge is to make sure they have enough to retire on," Robert Reynolds, Fidelity's vice chairman and chief operating officer, told a group of reporters gathered at the Rainbow Room in midtown Manhattan. "This is the largest do-it-yourself project in the history of this country. It has greater potential than [the] 401(k)."

Assets held by individuals aged 60 and over totaled $2.5 trillion in 2001 and are expected to reach an estimated $10.1 trillion in 2012. That far outpaces the entire mutual fund industry, which currently has about $7.5 trillion in assets under management. "This is an area we will make every effort to dominate," Reynolds said. Central to this effort is keeping an open dialogue with retirees. In speaking with 4,000 retirees and pre-retirees and holding seminars over the last five months, Fidelity has learned that there are significant "gaps in people's knowledge" about retirement planning.

Recurring Weaknesses

"There is a recurring series of weaknesses in the distribution phase of retirement," said Cynthia Egan, executive vice president and director of retirement income services at Fidelity. She noted that there has been too much emphasis placed on averages rather than probabilities with respect to life expectancy. "People are making disastrous decisions based on unrealistic longevity and how much money they can afford to draw down."

Holistic Approach

Another cause for concern is that too many conversations about retirement planning are transaction- or product-driven rather than focusing on investors' needs, their realistic goals and the best way for them to manage their finances. There are a number of new rules that have been implemented that investors may not be aware of such as minimum required distribution and quarterly tax filings. Oftentimes, they don't know which account to draw down first. Additionally, four out of five people have not drawn up a game plan for making the transition, Egan said. That translates into 60 million Baby Boomers blindly entering retirement. "The industry hasn't broadly addressed this problem," she said.

Designed for those individuals approaching or already living in retirement, the new product consists of several integrated elements offered in-person, on the telephone or on the Web. At the core of Fidelity Retirement Income Advantage is an administrative tool called the Income Management Account, which is designed to help clients monitor investment performance, multiple-income sources and expense and spending levels during retirement. Investors can manage not only their Fidelity assets, but also accounts held outside the Fidelity family of funds. The Income Management Account provides guidance for investors, whether they choose to use the tool themselves or with a representative at a branch office or over the phone.

Another attractive aspect of the product is its plug-and-play capability that allows investors to run a "stress test" to determine whether they are on track with their retirement goals. The Web tool automatically notifies the investor with a red exclamation point when he or she needs to rebalance the portfolio because the asset allocation is drifting, for example.

Fee Structure

The service will be provided free of charge to Fidelity customers until the end of the year. After that, customers with $100,000 in Fidelity assets will retain the complimentary service, while those beneath that threshold may pay a $30 annual administration fee. In 2005, new users will be required to pay a one-time fee of $750 to build a financial plan. Previously known best for its retail mutual fund business, Fidelity now boasts that 60% of its $1 trillion in total assets are held in retirement accounts. The Boston-based firm plans to launch a $40 million ad campaign in an effort to capture new money from investors who plan to retire in the next three to five years.

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