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Fidelity boosts solo savers with novel plan to match IRA contributions

A Fidelity branch in New York, December 11, 2013. REUTERS/Eric Thayer/Files

Fidelity Investments is providing both a gentle prod and generous reward to investors saving for retirement, with a new offer to match part of their IRA contributions for three years.

Under the IRA Match program - which the company says is an industry first - customers who transfer traditional, Roth or rollover individual retirement accounts can have up to 10% of their annual IRA contributions matched by Fidelity.

The privately held Boston asset management giant is essentially bringing one of the key perks of many corporate 401(k) programs to the market for self-directed retirement products.

“We looked hard at what has worked,” says Lauren Brouhard, Fidelity’s senior vice president for retirement. “The company match in 401(k) plans has been a very powerful tool to overcome inertia” among those charged with planning for their own retirement.

Here’s how the IRA Match plan works: Investors who bring IRA accounts worth at least $10,000 to Fidelity will be eligible, with the percentage of contributions matched determined by how much is transferred. Direct rollovers from a workplace 401(k) plan are not eligible.

Accounts between $10,000 and $50,000 will have 1% of annual contributions matched for three consecutive years. The match rises to 1.5% for accounts between $50,000 and $100,000, to 2.5% above $100,000, to 5% above $250,000 and tops out at 10% for accounts at or above $500,000. This means a maximum $5,500 annual tax-deductible IRA contribution would be met with at least $55 and up to $550 a year, depending on the account size.

With smaller accounts, then, the match values are pretty modest and might not seem a compelling reason to move an IRA to Fidelity. Brouhard says the greater value to customers might not be in the dollar amount of the match itself, but in the incentive it creates for clients to add to their IRAs each year.

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Of course, Fidelity is also making a bold grab for market share with this program during “IRA season” ahead of the April 15 tax-filing deadline. And in this, it is not alone.

The battle for retirement assets

Plenty of brokerage firms and asset managers offer cash rewards these days for transferring an IRA. Fidelity competitors E*Trade Financial Corp. (ETFC) and TD Ameritrade Corp. (AMTD) are dangling cash bonuses of up to $600 for transferring in an IRA account. Ally Financial Inc. (ALLY) and automated investment firm Motif Investing also have cash-reward deals.

These firms are always on the prowl for new accounts, to which they can offer fee-generating mutual funds and trading services. They spend heavily to pull in fresh assets. Analysts at Sandler O’Neill calculate that the big publicly traded online brokers – E*Trade, TD Ameritrade and Charles Schwab Corp. (SCHW) – spend anywhere from $400 to $1,000 per net new account on advertising alone.

Mainstream retail investment services represent a rather mature industry, and the competition now largely involves grabbing customers from a direct competitor. Trading commissions are a commodity (with a startup promising free trades) and a new class of purely automated investment-advisory firms known as “robo-advisors” is growing fast among younger, upwardly mobile investors.

Retirement accounts are attractively “sticky” for Fidelity and its peers, tending to stay put at a firm for a while.

Fidelity’s advance of the competitive front with the IRA Match comes in stretching that cash benefit over three years, while requiring the client to add new money toward retirement annually.

It’s no secret that Americans on average are woefully behind in building up savings to sustain them in retirement. Fidelity is trying to promote the point that even small amounts set aside in long-term investments can make a significant difference.

The firm’s own research indicates that for earners in their mid-30s and income of $60,000, saving just 1% more of their salary equates to about $50 a month in forgone spending, but can translate into $270 a month in additional monthly income in retirement.

The ability for investment companies to broadcast this kind of good-for-you message - which also generates good-for-them new client assets - means it won’t be surprising if Fidelity’s competitors follow it into the IRA match game.

 

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