Products October 3, 2007

Fidelity Releases New Retirement Income Products

Fidelity Investments introduced new mutual funds and variable annuities aimed at making it easier for retirees to convert their savings into monthly income payments.
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The Fidelity Income Replacement Funds combine managed asset allocation with a withdrawal program and the new deferred variable annuity provides a guaranteed withdrawal benefit for the investor’s lifetime, according to the firm.

The 11-fund series comprising the Fidelity Income Replacement Funds consists of target dates in two-year increments from 2016 to 2036, and is available for direct purchase by investors or through a financial adviser. The funds start with a more aggressive asset allocation weighted toward equity funds for potential growth and gradually shift over time, as the target date approaches, to a more conservative allocation emphasizing fixed-income and short-term funds.

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The funds also offer investors an optional, monthly payment program – the Smart Payment Program – for no added cost. The payment program comes up with a schedule of annual target payment rates to allow investors to receive regular withdrawals from a fund that keep pace with inflation, according to the company.

Investors can add more money, turn on and off their monthly payments, exchange into a fund with shorter or longer horizon dates, take additional withdrawals or sell the fund if needed, without penalty, Fidelity said. The funds can also be used to as a bridge to cover monthly expenses until Social Security or a pension begins, or for discretionary purposes, said Boyce Greer, president of Fixed Income and Asset Allocation at Fidelity, in a press release.

Investors can also purchase Fidelity’s new deferred variable annuity, choosing from two diversified portfolios that are actively managed by Fidelity. According to the press release, the cost of these annuities is about 40% lower than the industry-average annuity.

The two annuities offered by Fidelity are:

  • Fidelity VIP Balanced – invests approximately 60% in equities and 40% in bonds and other debt securities;
  • Fidelity VIP FundsManager, 60% — invests in other mutual funds and maintains an approximate target asset allocation of 60% in equities, 35% in fixed income and 5% in money market portfolios.

At the age of 59세, the contract holder and his or her spouse are immediately eligible to begin taking withdrawals, or the withdrawals can be postponed to a later date.

For more information on the new offerings is available here.

In Practice October 3, 2007

Perspective: Avoid Being a Low-Cost-Provider Commodity

The sixth of seven ineffective habits of retirement plan advisers
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In an environment where attention on retirement plan costs is increasing, it can be tempting to brand yourself as a low-cost provider. When you do this, though, it drags you into the commodity trap where you face continuous pressure on thin margins. This forces you to squeeze cost out of your service, something you probably can’t afford to do and still differentiate yourself in the marketplace.

In our experience working with hundreds of advisers, it is clear that demonstrating your value via exceptional value-added services is the best way to rise above a commodity label. When you elevate your service to true distinction, not only can you expect satisfied clients, you can expect those clients to be valuable marketers and backers, communicating their experience to other strategic focus prospects.

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So, how can you do great things for plan sponsors and make sure they recognize it? You can put your service and guidance into an integrated plan that addresses the varied needs of plan sponsors and their participants. At Russell, we have designed a Client Engagement Road Map to present this coordinated service while establishing clear expectations and timelines.

The road map provides a tangible illustration of the value you provide over time. It is the type of deliverable that can differentiate your service compared to that of the low-cost providers. You can use it to identify pertinent topics and associated actions and put a system in place to address these issues. Via this service outline, which can be personalized and prioritized, you can help clients understand and respond to their fiduciary obligations.

Using the Client Engagement Road Map to frame your ongoing service:

  • Relieves you of the burden of front loading the engagement
  • Holds you and the client accountable to an agreed-upon plan of action
  • Keeps you focused on what is most important to the client
  • Creates opportunities for value-added client education
  • Demonstrates service continuity in the event of changes at the employers (HR manager, CFO, investment board members)
  • Provides additional documentation to address appropriate fees for service

After reviewing the road map for the first time, close the discussion with the following dialogue:

  • “If we were able to stick to this road map, how would it benefit you?” (Remain silent. Let them reflect on how it would benefit them.)
  • “And how would that make you feel?” (Again, silence and reflection.)
  • “Here is what we need to do to get started.”

Then it is time to walk them through the specific recommendations and implementation that will be addressed in the first quarter of the road map. The road map is available here.


For more information on the Russell Client Engagement Road Map, please contact Russell Retirement Services at (888) 751-8355.


Previous articles in the Ineffective Habits of Retirement Plan Advisers series:
Seven Habits of Highly Ineffective Retirement Plan Advisers

Don’t Fall For the Experience and Intuition Trap

Do Your Best to Move Beyond “Doing Your Best’

Cast a Broader Net, Catch a lot of Suckerfish

Direct Marketing Often Fails the Viral Test

Don’t Confuse Sales Activities with Verifiable Advances

Matt Smith is managing director of retirement services with Russell Investment Group. He is responsible for DC research and strategic development of Russell’s defined contribution investment management business in the United States. Smith joined Russell in 2001. Over his 20+ year career, Matt’s experience spans the spectrum of the qualified plan business. Prior to joining Russell, Matt held the position of vice president and general manager of ADP’s west coast retirement services operations.

Copyright © Russell Investment Group 2007. All rights reserved. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company.

Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Russell Fund Distributors, Inc., member FINRA, part of Russell Investment Group.

RFD 07-7062. First used: October 2007

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