American Express Financial Advisors' recent entry into the individual 401(k) plan market may pose sales challenges for the company since competitors have more than a two-year head start.
Gregg Piehl, an American Express product manager, said the company is offering the product now as "part of its overall focus for retirement." Asked why it had taken American Express this long to launch a product that was authorized by the 2001 tax-cut legislation, he said, "I don't know why. Part of it is getting the technology in place and getting the service providers lined up."
Despite American Express' late entry Mr. Piehl said he does not expect many problems winning business. "There is plenty of demand out there," he said. "And not that many firms have jumped in yet."
Demand from new and existing clients has been brisk, he said, adding, "It's the No. 1 request for advisers."
Geoff Bobroff, an asset management consultant in East Greenwich, R.I., said that American Express must see good demand for its product to risk the handicap of introducing it relatively late. "They are responding to the demand of their own sales force," he said.
"Some firms" - like Scudder and AIM - "have done very well with it if there is sufficient demand from their client base," said Mr. Bobroff.
The Minneapolis subsidiary of American Express Co. introduced American Express Individual(k) last Thursday. The product is designed to give small-business owners flexibility, investment choices, and higher contribution limits in saving for retirement.
What could be even more of a challenge, given President Bush's reelection, Mr. Bobroff said, is the administration's support for Lifetime Savings Accounts, or LSAs, and Retirement Savings Accounts, or RSAs. The Employee Retirement Income Security Act "could become less important," he said, and products such as the individual 401(k) plan could be altered.
LSAs would allow annual contributions of $5,000 per person and tax-free account earnings and withdrawals. RSAs have similar features: Contributions could not exceed $5,000, but withdrawals made before age 58 would incur a 10% penalty.
An individual 401(k) plan lets investors save more aggressively. Participants can save up to 25% of their annual income as a tax-deductible contribution, and they can also make pretax salary contributions of up to $13,000 with a maximum combined contribution not to exceed $41,000. In addition, the Individual(k) plan lets investors make so-called catch-up contributions to their plans if they are 50 or older.
OppenheimerFunds, AIM Investments, and Pioneer Investments are main competitors in this arena, said Mr. Piehl, and have had a head start at signing up clients.
Banks that compete in the individual 401(k) arena include San Francisco-based Bank of the West, through its subsidiary, Eureka Investment Advisors, and Sandy Spring Bank in Olney, Md.
American Express, which markets the product through financial advisers, said it will target business owners who have no employees. It does not have a target asset size for clients.
Regarding sales goals, Mr. Piehl said, "It is too early to tell, but we anticipate 1,500 customers by the beginning of 2006." He would not say how much in assets American Express would like to lock in, but he said the industrywide average account size is $80,000.
"Once people understand the advantage of individual plans, how easy they are to set up, and how much money you could save, it will be fairly easy to sign people up," said Mr. Piehl. "It's a great way for individuals to accumulate and save assets for retirement."
Individual 401(k) plans are a very important niche product to offer, he said.
The American Express Individual(k) combines record keeping and administrative services, along with a range of investment choices, including American Express funds and individual stocks and bonds, as well as more than 2,000 mutual funds from outside vendors.
