LAST FRONTIER OF 401(K)S: MET LIFE SHAKES HANDS WITH AMEX FOR SMALL-BIZ PLANS

Two financial powerhouses, Metropolitan Life Insurance Co. and American Express Financial Advisors, have teamed up to grab a bigger share of the last frontier in the 401(k) market.

The companies announced last week that American Express’s 9,000 advisers will begin selling a Met Life 401(k) plan to businesses with fewer than 500 employees.

New York-based Met Life is providing administration and record keeping, but the plan will be sold under the American Express name. Both companies will offer their mutual funds through the plan, called Informed(k).

Although Met Life is already a major provider of 401(k) plans to big businesses and has a sales army, the alliance gives it greater access to a market that is an elusive target for many firms because of its fragmentation. American Express Co.’s Minneapolis-based adviser unit provides financial services to 1.8 million small businesses.

Meanwhile, American Express gets to use its brand name to sell funds without going through the expense of launching its own plan for small businesses. Under the agreement, Met Life also will begin offering several American Express funds through all of its 401(k) plans. The company and its affiliates currently administer plans with $78 billion for 2.7 million employees.

“There is no dominant player in that particular marketplace,” says Ann C. Mahrdt, a senior consultant in the retirement services consulting practice of San Francisco-based Spectrem Group.

“This is a great opportunity to have access to the small business market on the part of Met Life,” she says, adding that for American Express it’s “an opportunity to do additional cross-selling.”

Many companies have abandoned efforts to sell 401(k) plans to small businesses because they couldn’t make the business profitable. Nonetheless, it is the fastest-growing segment of the 401(k) market, which had an estimated $1 trillion last year, according to Spectrem.

In addition to selling its funds through the plan, Met Life is offering a guaranteed investment contract. Also available through the plan are funds run by six other money managers, including a series of asset-allocation portfolios managed by affiliates of Boston’s United Asset Management Corp. UAM runs similar portfolios for Met Life’s bigger pension plan clients.

“The American Express alliance is really supplemental distribution from a 401(k) perspective,” says Dawn Hynes, a Met Life vice president.

The plan, she says, will not be sold by Met Life reps, who already sell another 401(k) option for the small-business market.

Until now, the only 401(k) plan American Express advisers could offer their small-business clients has been one the company sells for Columbus, Ohio-based Nationwide Financial Services Inc.

Amex’s retirement services unit focuses exclusively on large-company 401(k) plans, says Randy Boser, vice president of retail retirement plans for American Express Financial Advisors. In all, American Express has $26 billion in 401(k) plan assets.

“We are able to private-label the product and get distribution through Met’s other 401(k) channels,” says Mr. Boser.

Such alliances are becoming increasingly common among 401(k) providers, says Spectrem’s Ms. Mahrdt. “More and more organizations are assessing their strengths and target markets and asking `who can we partner up with, align with or acquire?”‘ she says.

“That’s what Met Life is doing with the deal with Amex,” she adds.

Indeed, American Express, frequently mentioned as a takeover target of large banks, and Met Life, which is preparing to go public, may be trying each other on for size. But officials of both companies deny they are flirting with a merger.