Fidelity ramps up 401(k) managed account distribution

Fidelity Investments is trying to expand its reach into the 401(k) managed account market.

The firm has made a number of changes to its managed accounts over the past year and a half, including the addition of more financial planning elements for participants and a mechanism to automatically transition target-date-fund investors into a managed account.

But starting this fall, Fidelity — the largest record keeper of defined-contribution plans — will try a new strategy to get around one of the big roadblocks of managed account distribution.

Managed account options have traditionally been limited for 401(k) plan sponsors. Record keepers typically offer only one or two choices — one of those options is often the firm’s in-house product, and if there’s a second choice it is almost always one from an independent third party rather than a competing record keeper.

Fidelity will try to counter these headwinds by appealing directly to large 401(k) plan sponsors who don’t currently use the firm as a record keeper, said Lorianne Pannozzo, Fidelity’s head of workplace planning and advice. Representatives would explain that Fidelity believes managed-account selection to be a fiduciary investment decision, and that the plan isn’t limited to the options available on the current platform, Ms. Pannozzo said.

The hope is that the employer would appeal to its existing record keeper to add the Fidelity option, called Portfolio Advisory Service at Work, or PAS-W.

Chris Brown, the founder of Sway Research, a firm that studies investment distribution in 401(k) plans, said it’s a smart strategy for Fidelity, especially since many record keepers don’t have their own in-house managed account.

However, some record keepers may be hesitant to allow Fidelity into a client relationship, he said, for fear of them becoming further entrenched and perhaps stealing a potential participant rollover in the future.

“Maybe there’s fear that Fidelity is a wolf in sheep’s clothing,” Mr. Brown said.

Fidelity’s strategy to date appears to be paying off.

Its product, PAS-W, is the fastest-growing DC-plan managed account on a percentage basis, increasing its assets by about 57% in 2017, according to Cerulli Associates, a consulting firm. Fidelity also grew its market share by the greatest amount over 2011-17 — to nearly 11.7% from 3.9%, according to Cerulli.

Fidelity is currently the third-largest provider, with $36.4 billion in assets. For comparison, Financial Engines, the largest provider, dwarfs Fidelity, with $169 billion in assets, according to InvestmentNews‘ RIA Data Center.

There was a total $271.3 billion of DC assets in managed accounts at the end of 2017, according to Cerulli.

Fidelity distributes both its in-house managed accounts as well as Financial Engines’ on its record-keeping platform. Fidelity record-keeps more than $2 trillion in DC-plan assets. Ms. Pannozzo said there are no plans to add manged acounts from competing record keepers, but said that could change based on Fidelity’s continued evaluations of other advice providers as well as client feedback.

In 2017, Fidelity followed competitor Empower Retirement in launching a new product that automatically transitions employees invested in a target date fund to a managed account following a triggering event selected by the employer, such as turning age 50. Ms. Pannozzo of Fidelity said uptake of the product, Smart QDIA, to date has been “limited” but that interest is high.

Fidelity since the middle of last year has also successfully lobbied certain record-keeping firms, such as Sentinel Benefits, Alliance Benefit Group of Michigan and Alliance Benefit Group-Rocky Mountain, to add PAS-W to their platforms. Its newest strategy to reach out directly to plan sponsors complements this strategy.

In July, Fidelity also upgraded its managed account service to encompass more holistic financial planning and advice for 401(k) investors. That product, called Personalized Planning & Advice, is only available to Fidelity record-keeping clients.