Retirement Account Marketing Strategies 1994

Retirment Funds are important for mutual funds.

Retirement sales, ranging from company profit-sharing plans to the ubiquitous Individual Retirement Account, accounted for some $443 billion of the $2 trillion in mutual fund assets at the end of last year. And there is increasing evidence that these assets are growing more rapidly than the rest of the industry.

At Fidelity Investments, for example, investors racing to beat the April 15th deadline for their yearly IRA contributions, poured almost $500 million into retirement funds in a two-week period, a 49 percent increase over the same period a year earlier.

IRA sales doubled in 1993 at no-load manager T. Rowe Price, where retirement vehicles account for about half the firm's $35 billion under management At the Vanguard Group, retirement products represent 45 percent of the no-load giant's $127 billion in assets.

The market is being driven by a wholesale shift in company pension plans to what is known as "defined contribution" plans, where employees decide how their nest eggs will be invested. Mutual fund companies have pushed aside rival banks and insurance groups to become the investments of choice in this arena, known as 401k and 403b plans, after the legislation which created them.

Secondly, the corporate downsizing of American means that millions of employees are leaving their jobs with a fat chunk of money from their pension plan - often as much as $100,000 - 200,000, or more. And a new law which went into effect last year decrees that this money must be rolled over into another retirement vehicle within 60 days - on pain of losing a stiff 20 percent to the Internal Revenue Service.

the battle for retirement dollars is heating up. One small example of the competition is the rapid disappearance of annual $10 - $50 administration fees for IRAs.

said Hugo Quackenbush, a senior vice president at discount broker Charles Schwab & Co. "We thought it wasn't going to grow that much any more. But we found out from market research that someone with a $10,000 IRA was likely to do other business with us, so we initiated a no-fee IRA, and all of a sudden it has put pressure on banks and other competitors."

Among those eliminating or lowering fees recently are groups as diverse as USAA, a relatively small Texas fund manager which caters to the military and giants like Fidelity Investments, which also dropped commissions on many of its funds if purchased for an IRA. A Vanguard spokesman said that the biggest thing the no-load manager did last year waive its $10 fee for accounts over $5,000, conceding that it was a competitive move.

The marketing gurus at major fund groups are revving up their creative jiuces and throwing millions of dollars into retirement literature, once in the category of hard-to-understand, if not likely to put the reader to sleep. These days, retirement "kits", as they are known in the business, are glossy, user-friendly, and free of charge - despite high production costs.

One of the most successful endeavors was produced in 1992 by T. Rowe Price, the no-load fund manager. The materials included an easy to use workbook which dealt with the impact of inflation, taxes and Social Security payments on saving for retirement, something competitors had failed to do. Within six months, the firm received 220,000 requests for the free materials, two-thirds from individuals who were not Rowe Price customers. Five percent of that group ultimately bought one of the money manager's funds. To date, the company has sent out some 600,000 kits.