With more than two dozen retail investment offices already established here, Princeton seems to be an attractive market for stock brokers. Two with marquee names — Fidelity Investments and TIAA-CREF — have moved in, and they are different from the usual assortment of Merrill Lynches and Charles Schwabs. Fidelity’s claim to being different is that most retail customers access information by using its famous 24/7 telephone service, and TIAA-CREF, until now, has limited its services to teachers and other employees of nonprofit institutions. This is TIAA-CREF’s first "store front" office.

Fidelity, in contrast, has more than 90 "brick and mortar" centers around the country, and the latest one, opened in June, is at the Lowe’s Center on Meadow Road at 3518 Route 1 North. The branch manager, Robert Taylor, has been working for Fidelity ever since he was a finance major at Ramapo College, Class of 1993. A Rockland County native, his father is a corporate accountant who started his own business, and his mother works at Sony Corporation. He and his wife, a teacher at Bridgewater High School, live in Hillsborough.

"There was a strong demand from our clients to have a investor center in Princeton," says Taylor. Unlike many other retail brokerages, Fidelity does not usually assign a particular representative to a particular client (except when the client has more than $3 million in assets). All 10 staff members in Princeton deal with the public, and if clients happen to have a conference with a particular person, they may continue to work with that person. "The client decides the best way to interact," says Taylor. "What most clients find convenient is that Fidelity has multipoint access. You can meet with our epresentative here, and you can go home and research on the web, and if you have a question at 10 p.m. you can call our 24-hour call center."

"We were the first to have 24/7 call centers, and others have followed suit, but some have scaled it back," says Taylor. "We have been doing it for 20 years. It makes Fidelity unique." The call centers employ nearly 3,600 people and are located in New Hampshire, Massachusetts, Rhode Island, Texas, Ohio, and Utah.

Fidelity is the largest fund company in the nation and can also be counted as one of the largest institutional brokerage firms and one of the largest discount brokers. With $1.7 trillion in custody assets it manages in-house assets of $940 billion. For 18 million clients (individuals and institutions) and 5,500 financial intermediaries it provides investment management, retirement planning, brokerage, human resources, and benefits outsourcing services.

"When clients seek us out," says Taylor, "their most common need is planning for retirement, followed by college education planning and general wealth accumulation." Clients with brokerage accounts are not limited to Fidelity’s funds. They can buy stocks, bonds, CDs, and any of 4,500 non-Fidelity funds in the network.

"We are not a full service brokerage, but with our varied services we can compete with them," says Taylor. Some of Fidelity’s competition comes from the online services — Schwab, e-trade, and Ameritrade. Acknowledging this, Fidelity has lowered its rates. "If someone is trading a fair number of times over a 12-month period, they pay lower commissions — and also get breadth and depth of services in so many other areas — like life insurance or annuities. Clearly the active trader is a profitable customer, and we want to win that space," says Taylor.

"For online active traders and high asset clients we recently lowered commission rates to $8 a trade, and this positions us as one of the lowest online," says Taylor. "We also removed sales loads from our no load funds that are available to retail customers. And we are well below the average on internal expenses." He also touts an MBNA Master Card linked to a college savings account that earns two percent of each expenditure.

On the institutional side, Fidelity is a strong competitor to TIAA-CREF. It is the nation’s number one provider of 401k plans and number two provider of 403b plans (for not-for-profit organizations.) Though this Princeton office does not work directly with the institutions offering these plans, it welcomes the walk-in clients who hold them.

TIAA-CREF

TIAA-CREF is the grandfather of pension providers. TIAA stands for the Teachers Insurance and Annuity Fund, founded in 1918 to provide fully vested, fully funded, portable annuities to which both the teachers and colleges contributed. It was a ground-breaking concept, as was CREF, which stands for College Retirement Equities Fund. CREF was created in 1952 to deal with inflation that followed World War II when a landmark study showed that, over 70 years, a diversified annuity program (a stock account) had fared better than a fixed-income annuity.

The combined TIAA-CREF retirement system is meant to take the middle ground between the traditional annuity (that can fall prey to inflation) and the stock account (that is subject to the vagaries of the stock market).

Now TIAA’s annuities offer the fixed income option, and CREF offers three kinds of investments or asset classes: fixed income, equity, and real estate, plus a hybrid "social choice" fund. Both were formed as nonprofits to serve the nonprofit education and research community. That began to change in 1986, with the Tax Reform Act that made the life and health insurance operations taxable, and again in 1997 when the Taxpayer Relief Act made everything else taxable.

The 1997 law shot TIAA-CREF from its ivory tower, and it landed in a the tax-paying puddle with all the other financial institutions that sell to the general public. Though it retains its nonprofit status, it now pays interest on its life insurance reserves.

ast year it hired a new CEO, Herbert M. Allison Jr., who until 1999 had been president of Merrill Lynch. He started out by laying off eight percent of the 6,000-person workforce, mostly those in the back offices, and by raising some eyebrows. Allison’s compensation was revealed last month as $8 million for 2003 — $1 million in salary, a minimum $3 million performance bonus, and a long-term compensation of $4 million, payable in two years. But analysts agree that if Allison succeeds in transforming the company, it will be money well spent.

lison is moving quickly to make the company more customer-centric. That means targeting segmented markets and adding brick and mortar locations. In addition to the new first-floor office at Forrestal Village, TIAA-CREF is also opening regional facilities in other academic centers — Charlottesville, Virginia, and New Haven, Connecticut.

Princeton’s branch manager, Peter Ippolito, came from TIAA-CREF in Philadelphia. "When we ran the data for the state, to find out where our customers live and work, the Princeton area was easy to choose," he says. He points to 93,000 customers in New Jersey, with 40,000 within a 30 to 40-mile radius. "And many of our institutions that anchor the state — Princeton, Rutgers, Educational Testing Service, Robert Wood Johnson Foundation — are close."

Ippolito grew up in New York, where his father had an auto body shop. After majoring in management at Iona College, in New Rochelle, New York (Class of 1982), he worked in the insurance industry in the New York metropolitan area. He joined TIAA in 1987 as a benefits consultant, moving to Philadelphia where he began to manage a field team in 1997. He and his wife, a freelance writer, live in Medford with three school-age children.

TIAA-CREF has something in common with Princeton — both owe a debt to Andrew Carnegie. The philanthropist paid for digging Lake Carnegie so that Princeton University could train its oarsmen, and he gave the first $10 million (more than $17 million over a 40-year-period) to set up a pension system for professors. That was back in 1905, with the founding of the Carnegie Foundation for the Advancement of Teaching (which now operates as a think tank). Carnegie also founded a life insurance company for teachers. After 10 years the paradigm changed, because everybody realized that the Carnegie money could not last forever and that the colleges and the faculty members would have to contribute to the pension plans.

The TIAA-CREF Group is the 89th largest company in the United States and has $291 billion in assets under management. Among its customers are all the state colleges, universities, and community colleges, and many nonprofits. Any nonprofit institution can seek eligibility, and some of Ippolito’s smaller clients are Lawrenceville School, Princeton Theological Seminary, Hun, Peddie, and various hospitals. Though a particular college may offer six choices of benefit plans to their employees, TIAA-CREF has what Ippolito terms "the lion’s share of employees" in these institutions.

Ippolito defines "lion’s share" with the claim that 90 percent of the employees at state colleges or universities who have a "defined contribution" retirement plan are TIAA-CREF customers. (The "defined contribution" plan contrasts with the "defined benefit" plans for which the employer pledges to pay a percentage of the salary upon retirement. Nonprofit plans comparable to a 401(k) plan are called 403(b) plans.) Under a defined contribution plan both the employee and the institution make contributions to a retirement fund. The institution selects the array of providers (such as TIAA-CREF, MetLife, ING, Fidelity, or Vanguard) and the employee chooses one.

Here’s where the competition comes in. If TIAA-CREF can now sell to the general public, discount stockbrokers like Fidelity and Vanguard have muscled in on the profitable junior faculty market. Once professors sign up for a particular pension fund provider, it’s relatively easy to sell the other products, like life insurance, mutual finds, IRAs, personal trust services, and college savings plans. So Allison’s changes — to build more brick-and-mortar branches and to make TIAA-CREF more customer-centric — are intended to fend off the Fidelities and the Vanguards.

Are companies like Fidelity really a challenge? Let’s compare: The TIAA-CREF pension system serves 2.9 million education and research employees at 15,000 institutions. It is TIAA-CREF’s primary business, whereas pension management for not-for-profit institutions is a rapidly growing part of Fidelity’s business, though not the major part. Fidelity says it is number two in 403(b) plans. Its division that manages pensions for tax-exempt entities has 13,000 plans for 1.9 million participants (though Fidelity probably has a lower percentage of academic institutions in those statistics than does TIAA-CREF).

By opening the Princeton office Ippolito hopes his staff will be able to spend more time with customers. More time translates to more products sold — retail products such as annuities, IRAs, insurance, and 529 college savings plans in 12 states. Mutual funds, such as Vanguard funds, are offered directly or through related brokers, such as Charles Schwab, Vanguard’s platform.

"Many of our major competitors have offices throughout the country. We don’t intend to match what they do, but we are strategically focusing our efforts in these customer centers," says Ippolito, noting that a dozen other offices are sprinkled around the country. "Since financial planning is becoming more complex, the needs of customers are more complex. People leaving large estates need advice, and you can’t do that from the phone."

Education is also on Ippolito’s agenda. The office has 12,000 square feet of space, more than would seem necessary for the initial 14 employees, but the space does include a 40-person presentation room. A special perk for non-profit clients is that they can use the board room here.

Ippolito’s staff includes both counselors who work with individual clients and consultants who work directly with institutions, such as ETS and Princeton University. These consultants provide an A to Z service to help design the plan, determine the appropriate contribution rate and employee match, set up plan provisions, advise on how many funds to offer, and which funds to offer. They suggest ways to plan for individuals to take the money out, and whether the institution wants to offer other options — loans or transfers.

"We help the institution in many ways during the year in terms of filings and notices — we take on that rule as their administrative partner. We do it at cost," says Ippolito. "It is of tremendous value to our customers to get a product that is clean — no-load in and no-load out. This makes us unique in the industry."

Fidelity Investments, 3518 Route 1 North, Princeton 08540. Robert Taylor, branch manager. 609-716-8156; fax, 609-716-1821. Home page: www.fidelity.com

TIAA-CREF, 155 Village Boulevard, Princeton Forrestal Village, Suite A, Princeton 08540. Peter Ippolito, assistant vice president. 609-243-6000; fax, 609-720-1327. Home page: www.tiaa-cref.org

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