BOSTON -- Fidelity Investments plans to introduce a personalized investment service for 401(k) plan participants next year, but is stopping short of calling it investment advice.
The interactive service will offer specific recommendations -- which the participant is free to accept or reject -- on how his or her account balances should be invested.
Through a module known as PortfolioPlanner, Fidelity will offer participants a set of investment recommendations based on options available in the participant's plan, including any non-Fidelity funds and company stock.
Fidelity's move follows the Labor Department's first-ever approval of a request by a money manager to provide investment advice to participants. In that case, TCW Group, Los Angeles, won a prohibited transaction exemption from the Employee Retirement Income Security Act to deliver specific investment advice to 401(k) participants for a fee. Participants would direct their investments into four commingled trusts. The trusts would invest in TCW's Galileo family of mutual funds (Pensions & Investments, Sept. 1).
Unlike the TCW proposal, Fidelity does not consider its service advice and, thus, did not seek Labor Department approval.
According to a Fidelity spokes- woman, after reviewing the Labor Department's regulations on the rendering of investment advice, Fidelity executives decided that what their firm is providing does not constitute advice under Labor Department guidelines.
Indeed, Robert L. Reynolds, president of Fidelity Investments Institutional Retirement Group, Boston, said the service will fall under the education umbrella.
The purpose is to provide "participants with a complete understanding of their investment funds, how they are invested and how they should be invested," he said.
"This will tell you exactly what funds and what percentage of your portfolio you should be in and which specific fund options." He said the financial planning service is not a response to TCW's effort.
"It is our answer to something we have been working on for some time -- to provide better resources to plan participants in making the right decisions for retirement," Mr. Reynolds said.
The service is an extension of financial planning software and programs offered by several vendors. But, said Mr. Reynolds, "this goes the next step and tells you what you need to do by telling you what funds in your specific plan you need to attain your goal."
PortfolioPlanner has three modules that participants may complete all at once or in stages. They are:
*An analysis of how much needs to be saved for retirement and how close the participant is to meeting that goal.
*A recommended asset allocation model with a comparison to the participant's current asset allocation.
*Specific recommendations for the participant's 401(k) plan assets based on options available in the plan.
In addition, the program provides an analysis of the current and recommended portfolios by asset type, sector weighting and foreign securities holdings.
Target portfolios are constructed based on asset allocation, investment style, sector analysis and foreign holdings.
Fidelity will begin offering PortfolioPlanner to its 401(k) clients in early 1998. It will be made available to 403(b) and 457 clients later in the year.
Mr. Reynolds said the investment recommendation program has been beta tested with some Fidelity clients he declined to name.
Fidelity plans to piggyback the investment service with its plan sponsor Internet site, which provides full transactional capabilities to more than 1,000 companies with more than 2 million participants -- slightly less than half the participants serviced by Fidelity.
That way, Mr. Reynolds said, "it allows the participant to make any changes they need to make; they can do the model and then execute changes that need to be made at the same site and they can do it at any time."
Fidelity's investment module more closely resembles the online investment advice provided by San Francisco-based 401(k) Forum, a registered investment advisory firm that, unlike Fidelity, considers itself a fiduciary. 401(k) Forum launched its Internet advice service in July.
Drake Mosier, 401(k) Forum chairman, said he's "happy to see a big player come into the business to help validate the market . . . If imitation is the sincerest form of flattery, then certainly we are (flattered)."
Shelton Unger, principal-institutional division at The Vanguard Group, Valley Forge, Pa., one of Fidelity's biggest competitors, said Fidelity's move is not new.
Vanguard offers more specific investment recommendations to clients who request it. The service is offered through its advisory and financial planning services.
"We've been offering advisory services for the past two years; this is not new in our view," she said. "We try to look at the entire financial picture of the individual investor including total income, debt, outside investments and the like. No financial planner would carve out just the 401(k)."
Mr. Reynolds said the cost of the new service has not been announced. "We may charge the plan sponsor an annual fee depending on the specific plan such as size, number of participants and other factors."