Responding to investors' desire for advice, fund companies are forming liaisons with investment advisors to provide guidance.

"Fund companies are looking for a way to provide investment advisor services," says Cathy McBreen, who specializes in retirement services at the Spectrem Group in Chicago. "It's an important thing for providers to do now because as they develop a relationship with participants, fund companies will (effectively advertise) their brand name."

Fund companies have hesitated to give advice because they are concerned about liability if their choices turn out to be bad for investors. But, McBreen says liability should not be a concern because a 1992 Department of Labor decision limits retirement plan sponsors' responsibilities in providing investment advice.

The Department of Labor's 404(C) Regulation says that retirement plan participants are responsible for their own decisions as long as plan sponsors give them appropriate education on investing. The rule spells out what investment choices employers have to offer to enter a "safe harbor" from fiduciary liability. Employers have to offer employees at least three investment options, each with different risk and return characteristics; allow them to change their investments; and give employees enough information to make informed decisions.

Nevertheless, fund companies have been uncertain about what is permissible. But in October, 1997, the Labor Department came out with exemption TCW, which allows a company to give advice instead of education. The exemption permitted an asset management firm based in Los Angeles, the Trust Company of the West, to receive fees for advising plan participants on how to allocate money among mutual funds operated by the firm and offered in the participant's 401(k) plan.

"At that point the other providers jumped on the bandwagon, saying that this is important because participants want advice instead of just communication and education," McBreen said.

McBreen said there was a handful of fund companies now that have formed ties with advisory firms and that her company was advising two of them. She declined to name any of the companies.

But, Fidelity is one company that has begun to provide advice to plan customers. In July, 1997, Fidelity decided to use its advisory firm, Strategic Advisors, to do so. In July, 1998, following the issuance of the TCW exemption, Fidelity began making use of Strategic Advisors to provide asset allocation and diversification guidance to 401(k) participants through its its Portfolio Planner, a service provided online. (Fidelity, however, says the issuance of the exemption and its subsequent actions were unrelated.) Last month, Fidelity announced that at least a dozen of its plan sponsors were taking advantage of the new service. It also announced at the same time that it has introduced the service to 403 (b) participants and that at least ten plan participants were already beginning to use it.

To use the service, plan participants type in their retirement income and risk tolerance and receive asset allocation models in response.

Although Fidelity denies it, McBreen says Fidelity's development of its own advisor is for marketing purposes.

"The customer will know Fidelity's name and brand and bring more business to them," she said. "As the investor sees Fidelity as a trusted advisor, they will go to them for all of their investment advice in addition to 401(k) advice."

Fidelity Investments, the nation's largest 401(k) provider, is offering advice by other means as well. It has recorded market commentary on its phone system and mailed a brochure called, "Investing in the Changing Market," to plan sponsors and participants. The website at also addresses how investors should react to increased volatility.

While Fidelity produced its website and brochure, the Dreyfus Corporation, in January of last year, linked up with Ayco, a financial planning service based in Albany, New York, to start Dreyfus Advice and Guidance. Unlike Fidelity's online service, Dreyfus' investment advice primarily is provided over the telephone.

A financial planner asks callers a series of questions on asset allocation and individual financial goals and then sends the investor analysis of the individual's need and recommendations for an investment plan, says Beth Basilio, a Dreyfus spokesperson.

The new service is aimed at providing financial planning advice particularly for the company's Lion Account client, says Basilio. Lion Account clients invest in mutual funds, stocks, and options in an all-in- one investment account.

Dreyfus charges $100 for the service but for customers with more than $50,000 invested, the fee is waived. For clients who wish to work independently, Dreyfus offers financial planning guides.

For 401(k) clients, Dreyfus offers educational brochures, informational seminars but not financial planning or asset allocation services, says Basilio.

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