Saturday, May 20, 2000
Tristate stays true to Fidelity
Retirement plans rely heavily on company's funds
By Amy Higgins
The Cincinnati Enquirer
Emily Muhlhauser, a Fidelity Funds telephone service associate, at the Covington office.
(Steven M. Herppich photo)
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In the race to capture the attention and retirement dollars of Greater Cincinnatians, one fund family is far in the lead: Fidelity Investments.
The mutual funds of the investment company — which is a large Tristate employer itself — are offered through the savings and retirement plans of most major employers in Greater Cincinnati.
While it's impossible to say definitively which are the most widely held funds, three of Fidelity's 150-plus funds specifically stand out as the most widely offered. There's a good chance that employees have access to:
• Fidelity Contrafund.
• Fidelity Equity-Income Fund.
• Fidelity Puritan Fund.
Enquirer research shows that more than 65,000 Greater Cincinnatians can use these to build their retirement nest egg. That's more than one-third of the work force among the area's top 20
employers. And Greater Cincinnati isn't alone. Fidelity says these are three of its 10 most popular funds for company-sponsored retirement accounts.
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RANGE OF RISK
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Mutual fund spectrum of risk, from lower risk and return to higher risk and return:
• Money market funds
• Short- and intermediate-term bond funds
• Long-term bond funds
• Balanced funds
• Growth and income stock funds
• Growth stock funds
• Aggressive-growth stock funds
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The Enquirer's goal was to find which of the 11,000 U.S. mutual funds most Greater Cincinnatians likely hold. According to the Investment Company Institute, 62 percent of fund-owning households invest in funds through employer-sponsored retirement plans, 51 percent specifically through a 401(k) plan.
So the Enquirer surveyed 20 of the major Tristate employers about what they offer.
Because Greater Cincinnati's economy is a diverse group of public/private sector and old-economy/new-economy employers, the retirement plans also vary widely — from Procter & Gamble's unique profit-sharing plan largely reliant on P&G stock to Delta Air Lines' offering of more than 100 mutual funds in its 401(k) program.
Several companies offer 401(k)s with just one fund in each investment category, while schools, hospitals and governments have tax-sheltered annuities, 403(b)s and pension funds.
Some plans offered mutual funds from Dreyfus, T. Rowe Price, American Century, Warburg Pincus, Templeton and Strong. Through all of the variety, however, one name kept resounding: Fidelity.
“Part of why you'll see these funds appearing is just representative of Fidelity's position in the retirement marketplace,” said Bill Carey, executive vice president of Fidelity Institutional Retirement Services Co. “We have a big presence in this market across the board.”
Mr. Carey said Fidelity controls about $2 billion from 70 401(k) plans in Greater Cincinnati. Some of its local dominance might come from having a local presence: The customer-service offices in Covington employ more than 3,300, putting the investment company at the forefront of a local consciousness. Mr. Carey and his division are based in Covington.
But Fidelity is nationally dominant, too: Its position of administering more than 7,000 retirement plans for 7 million employees nationwide makes Fidelity the top provider of 401(k) services. It comes in third for 403(b) plans, the not-for-profit breed of retirement plans.
Mutual fund analysts say Fidelity is also known for slick marketing campaigns, effective sales staffs, solid returns and outstanding customer service.
“Fidelity has a number of things going for it that only a handful of other fund companies have,” said Scott Cooley, a senior analyst with Morningstar Inc. “They are very good at marketing their funds, but it's easier to market a fund when you have a pretty good product to market.”
Still, Mr. Carey said companies primarily choose the company's funds for their retirement plans because of the funds' performance themselves.
“Companies do due diligence,” Mr. Carey said. “They go through a process of identifying lead providers, and make selections based on long-term performance.”
Mr. Carey said one common characteristic of Fidelity's Contrafund, Equity-Income Fund and Puritan Fund was that all had proven track records. But they come from different places on the mutual-fund spectrum of risk. Contrafund is a growth fund; Equity-Income and Puritan Fund are balanced, or growth and income, funds.
Hillenbrand Industries offers all three, along with four other Fidelity funds, in its 401(k). Dave Raver, director of compensation and benefits for Hillenbrand, said the Batesville casket maker started offering just the Puritan Fund in its plan in 1987.
The company researched other funds, but ultimately decided that Puritan was the best choice for its risk-averse employees who until then had been offered only an interest-bearing account.
“It was a conservative fund that had some equity in it,” Mr. Raver said. “It was our first effort to offer equities to employees.”
Hillenbrand then chose Fidelity as the plan administrator in the early 1990s and expanded employees' fund options because it offered “cost-effective, one-stop shopping.”
In addition to the Contrafund and Equity-Income Fund, Fidelity's Magellan fund was among Hillenbrand's expanded offerings.
Magellan — famous for its market-trouncing returns under the 13-year management of Peter Lynch — is conspicuously absent from other major plans in Greater Cincinnati, however. It's in some, but not as many as the three most popular.
Nationwide, however, Magellan continues to be the favorite, topping off Fidelity's list of funds with the most company-sponsored retirement plan dollars.
“The other three appear in the top 10, but Magellan is still No. 1,” Mr. Carey said.
Mr. Cooley said, however, that bigger isn't always better. Neither is offering a limited number of funds from the same fund family. Mutual funds tend to be harder to manage and keep up with the indexes when they grow too large.
“Contrafund in particular was putting up better numbers when it was smaller,” Mr. Cooley said. “In recent years, none of these funds had blow-out returns.”
Mr. Cooley said these funds don't invest in a lot of high-risk technology companies that have been the big winners recently.
Employees also need to be careful that they are diversified enough. Fidelity's Equity-Income and Puritan funds share many of the same investments, and as of February have shared the same fund manager.
“There certainly are other ways to get more diversity within Fidelity than to have two Stephen Petersen-managed funds,” Mr. Cooley said.
That's why employees need to educate themselves about their goals, and which funds will help get them there. Having those options with Fidelity, Greater Cincinnati employees should not feel shortchanged, Mr. Cooley said.
“If I were setting up a plan like this, I would be giving Fidelity a lot of thought,” Mr. Cooley said.
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