Fidelity Investments has introduced an open architecture annuity platform that an executive said should help the Boston investment company retain assets after 401(k) customers retire.
The platform, Fidelity Life Income Solutions, lets people who are leaving a 401(k) plan buy fixed or variable annuities in order to establish an income stream for retirement. Fidelity will offer both proprietary and nonproprietary annuities to customers interested in rolling their 401(k) assets into a product that guarantees retirement income.
Though Fidelity has long offered annuities, coupling them with 401(k) plans is new at the Boston fund giant. Fidelity manages more than $1.3 trillion of assets and has $2.7 trillion under custody.
Steve Deschenes, an executive vice president at Fidelity Investments Life Insurance Co., said it will offer its annuities along with products from the insurers Principal and the John Hancock unit of Manulife Financial Corp. The company has agreements with two other annuity providers, he said, and plans announcements about platform enhancements this year.
“We want to maintain a long-term relationship with our 401(k) participants,” he said, “and this is part of a broad suite of services that we are using in order to insure that this occurs.”
Retaining customers after they retire is a top priority at Fidelity. Mr. Deschenes said that, in the past couple of years, Fidelity has launched Fidelity Retirement Income Services and Fidelity Retirement Income Management Account as products to receive customers’ 401(k) rollovers.
This is the first time, however, that Fidelity is marketing annuities for plan sponsors to offer participants, he said.
“In this environment, where 401(k) has become the primary or sole retirement planning source, it is critical to provide products and education surrounding these products for people after they retire,” Mr. Deschenes said. “With 401(k)s, individuals shoulder a lot of risk, and many don’t understand the actuarial bed that they are making without having a product that offers a lifetime income hedge.”
Analysts said it is crucial for companies like Fidelity to introduce products and services that let them keep managing assets for retired customers.
“With so many baby boomers approaching retirement, there are a lot of assets that will move from asset accumulation to asset distribution over the next five years,” said Burton Greenwald, an analyst at BJ Greenwald Associates in Philadelphia, “and I think there are only a handful of investment companies that are adequately preparing themselves for this shift.”
“There is no question that we are focused on developing a comprehensive approach to help boomers and other investors plan for both accumulation and distribution as they head into retirement,” Mr. Deschenes said. “We think that that is a very, very important market.”
Analysts said companies must approach annuity distribution carefully to insure that the products are only sold to customers for whom they are suitable.
In recent years annuities have gotten a bad rap, Mr. Deschenes said. “Within this heading of ‘annuities,’ there are efficient and appropriate products for each individual,” he said. “We want to put individual participants in touch with the product that is appropriate for them and helps them build the appropriate income plan.”
“We are not pushing clients into one product or another,” he added. “This new platform is a planning solution that looks for the best products for each individual customer. Obviously, annuities do help individuals that live beyond their life expectancy.”
Assets held in annuities have grown in the past 10 years as variable annuities have steadily gained favor. Sales of the variable product grew from $111 billion in 2001 to nearly $137 billion last year, according to Limra International.
Mr. Deschenes said sales have improved because the products in the market have improved and people approaching retirement are more interested in discussing annuities.
