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Fidelity Taking on 403(b) Goliath: Aims to Catch up to Market Leader TIAA-CREF

Fidelity Investments has a bold, five-year plan to expand its scant 8.5% share of the 403(b) market and catch up to giant TIAA-CREF, which commands a monumental 67% share of 403(b) assets.

Certainly, this will be a challenge, even for 401(k) leader Fidelity, as TIAA-CREF has built a 90-year reputation for solely focusing on those in the academic, medical, cultural and research fields-and has dominated the 403(b) market for several decades.

If Fidelity is going to make any headway, it must train and educate its sales force to be able to address 403(b) sponsors' and participants' preoccupation with conservative investments and convince them to embrace the variety of options found in 401(k) plans, industry executives said.

Fidelity, which manages $397 billion in 401(k) assets, or a 15% share of that $2.7 trillion market, believes it is in a prime position to take a large bite out of the 403(b) market, given new, upcoming regulations from the Internal Revenue Service. The new regulations essentially will force 403(b) plan providers to take on fiduciary responsibility for their respective plans, and, therefore, encourage them to consolidate the number of providers they use.

TIAA-CREF manages about $371 billion in 403(b) money, while Fidelity manages a scant $49.8 billion. The 403(b) marketplace is estimated to be at about $546 billion.

Currently, 403(b) plans use four to five providers representing as many as 80 investment choices on average, and are typically conservative in the investment options that they offer. Annuities-investment options that guarantee an income stream for retirees-are the most common investment choice offered.

Put simply, the upcoming IRS regulations will encourage 403(b) plan providers to offer a wider array of investment options, such as equity and debt mutual funds. That type of set up would be similar to 401(k) plans, which typically offer a wide array of investment options.

Deborah Pont, a spokeswoman for Fidelity, declined to comment for this article, citing the firm's policy of not discussing its marketing and sales plans.

"What Fidelity has to do is convince 403(b) providers to do something that they're not used to doing, which is to offer a plan to educators that is similar to a 401(k) plan," said Jan Jacobson, president of the American Benefits Council in Washington. "403(b) plans typically offer both variable- and fixed-rate annuities."

Trisha Brambley, president of Resources for Retirement, an industry watchdog group for retirement plans based in Newtown, Pa., said Fidelity needs to hire more sales and marketing executives who understand the needs of the 403(b) plan market.

"Obviously, there's a gap that needs to be bridged between the 403(b) plan market and the 401(k) market," she said. "Fidelity already has the investment options in place to serve 401(k) plans. But the 403(b) market is typically much more conservative in what they offer in terms of investment options. Fidelity's sales and marketing people have to convince 403(b) plan sponsors that a 401(k)-like plan is better. That's the real challenge."

One consultant who did not wish to be identified said, "It's going to be tough for Fidelity. TIAA-CREF is a household name [among 403(B) plan providers]. They need to hire a lot of salespeople who have large rolodexes of 403(b) plan executives if they are to gain market share. I know a lot of people at TIAA-CREF, and it won't be easy to get market share from them."

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