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National Debate Spurs Product Push


As President Bush pushes the issue of retirement investing to the forefront with his plan to partly privatize Social Security, leading fund complexes are responding to the heightened awareness by rolling out a number of new products.

The product push began in most part with Fidelity Investments' VIP, or Variable Insurance Product, Freedom Funds, a series of seven actively managed lifecycle portfolios designed to help investors choose an asset allocation strategy that matches their stage in life and expected retirement date. The VIP Freedom Funds, announced last month by the Boston-based fund giant, are offered as an investment option within the variable insurance products within insurance companies.

The VIP Freedom Funds announcement came on the heels of a study from Fidelity that revealed that although 66% of recent retirees surveyed by the fund complex report that they are living the lifestyle that they had hoped for in retirement, an overwhelming number reported that they wished they would have sought greater guidance with their retirement transition.

Taking a cue from its hometown rival, MFS Investments introduced on April 1 a number of enhancements to its retirement services unit that are designed to make its offerings more flexible and easily understood by participants. The enhancements include five new share classes to meet the needs of all sizes of retirement plans; a simplified administrative pricing schedule that calculates fees on total plan assets, not just MFS assets; and a greater number of investment options by offering funds outside the MFS family.

Less than a week later, Kansas City, Mo.-based American Century Investments unveiled On Plan Investing, a utilitarian product that offers new investors a customized investment strategy, access to educational tools and market insight, and, of course, risk-based products to build a diversified portfolio.

"Our recent research suggests that investors continue to grapple with some of the most basic investment concepts, suggesting a greater need for financial advice and guidance," said Doug Lockwood, vice president of investor guidance at American Century.

Wachovia followed suit soon after that by announcing a similar initiative, which moves much of its retirement services and investment products under one organization. The Charlotte, N.C.-based firm's new Retirement and Investment Products Group will be the new home to its overall retirement strategy group, its employer-sponsored business and its annuities and reinsurance programs.

Luis Fleites, a senior analyst at the Boston-based mutual fund consulting firm Cerulli & Associates, agreed that Bush's proposal has brought the issue of retirement to top of mind among Americans, but said the products more accurately reflect a lack of confidence in the market among investors.

"A lot of this has to do with timing, to a certain degree," said Fleites, who is compiling a study about retirement income in the Baby Boomer demographic and how the financial services industry can serve their needs.

"Between 2000 and 2002, the market did so poorly and [retirement] accounts did so poorly; people aren't as confident in how they are managing their assets the lifestyle. [As a result,] lifecycle funds are very well suited in terms of embedded advice and managing risk all in one vehicle," he said.

These products also compel participants to action, he said.

"There's been, over the years, difficulty in getting participants to diversify and rebalance and reallocate, and a lifecycle fund does things people aren't doing on their own. So the trend is finding new ways to make the plan work for the participant who isn't going to act on their own," he said.

Max Rottersman, founder of the research and consulting firm FundForensics, said that the arrival of these new products, particularly lifecycle portfolios, is hardly ironic given Bush's plan to offer Americans more control over their retirement security through private accounts; but, he added, they're also an answer to the influx of low-cost, highly efficient exchange-traded funds into existing retirement portfolios.

Last year, the popularity of ETFs rose by 51% to $227 billion, according to Financial Research Corp.

"Mutual fund companies need to have a product that answers ETFs, so that you can have one-stop shopping, a very simple product that rebalances itself. So it's definitely connected to the Social Security debate, but it's also connected to the competition that funds are getting from ETFs and advisers," he said.

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