NEW YORK - Metropolitan Life Insurance Co. formed a three-way alliance to offer portfolio management and on-line investment advice to MetLife client plan participants.
Services of the Scarborough Group, Annapolis, Md., an investment advisory firm that manages individual participant portfolios, and 401(k) Forum, San Francisco, an Internet-based investment advisory service, will be available to MetLife's 648 bundled defined contribution plan clients.
MetLife's plan sponsor clients will decide whether to offer the option to participants.
The alliance opens a major distribution network for Scarborough and 401(k) Forum.
The alliance provides MetLife with an enhancement to its investment education and communication capabilities.
According to Dave Evans, principal at the Scarborough Group, the alliance represents the next step forward in investment management for 401(k) plan participants, moving beyond investment education to the actual management of participant portfolios on a fiduciary basis.
Both Scarborough and 401(k) Forum are fiduciaries and can provide investment advisory services to participants. Plan sponsors and service providers like MetLife so far have been restricted from providing specific investment advice.
Scarborough now manages nearly $1.2 billion for more than 6,000 defined contribution plan participants at companies such as General Motors Corp., AT&T Corp. and Lucent Technologies Inc. on a fee basis.
Unlike those companies, which do not endorse Scarborough but simply make the service available to participants, MetLife will market the account management services of both 401(k) Forum and Scarborough Group to its bundled clients as an augmentation to its defined contribution services, said Gary Lineberry, vice president and head of the MetLife defined contribution group.
"For most employees the question has always been, 'Where do I put my money?' As a provider we can't answer that question and the plan sponsor usually can't. Our goal is to help people with the answers. While we can't provide investment advice, we will offer these two approaches, which goes beyond the definition of full service."
Mr. Lineberry said the demand for participant investment advisory services "has been loud and has been heard for years. As 401(k) plans offer more and more investment choices and as account balances grow there seems to be more of a need for information on intelligent choices."
Ron Hurt, national director for MetLife defined contribution communications, said he could not estimate the anticipated demand for the new services. Nor could he predict if plan sponsors would prefer one over the other.
"It is easier for me to envision our clients offering both services rather than one or the other. I know the demand is out there," said Mr. Hurt.
Scarborough's Mr. Evans said, however, that he expects about 20% of participants will be given access to sign up for the Scarborough's service.
401(k) Forum originated on-line investment advice - using "smart software" and a proprietary model - that allows 401(k) participants to receive fund-specific recommendations.
Fujitsu America Inc., recently became 401(k) Forum's first Internet client, making the service available to more than 900 participants.
According to Drake Mosier, founder and chief executive officer, 401(k) Forum's software builds a personal profile for each participant and customizes investment plans based on each participant's investment knowledge, experience and investment objectives, all via the Internet. Mr. Mosier said participant profile information is password protected and easily updated so investment recommendations can be obtained and implemented in a minutes.
Fees for the 401(k) Forum investment advice ranges from $10 to $30 per participant per year and are included in plan expenses.
The Scarborough service is more personalized, involving contact with a financial adviser and discretionary account management for a fee of $299 to $325 per year to the participant.
Both investment services base their recommendations on plan specific information, including the number and type of funds, contributions, matching and other plan provisions.
Under Scarborough's system, participants complete a questionnaire to determine risk tolerance, and short- and long-term investment objectives, and then an investment plan is developed. Scarborough monitors the investment plan and, while it has discretionary authority, usually only makes portfolio shifts after consulting with the client.
"This formally ushers in the dawn of the next era in 401(k) development," said Mr. . "First, plan sponsors provided basic information to participants about the plan, then we moved into the era of education about asset allocation and investing. Now we are going to offer actual investment advice and investment management to participants who have seen account balances expand over the past few years. Many participants are looking for help in managing their portfolios or may not have sufficient time to devote to portfolio management."
