Industry Insight from Fred Barstein
December Opportunity Index - A Year to Remember or Forget?

It might be tempting for record keepers to believe that the historically low 2009 401kExchange Opportunity Index¹ was an aberration, except that the trend since 2005 has been nothing if not consistent.  Less than 3% of plans in all markets indicated that they were thinking of changing or actively searching for a new record keeper which is down 40-50% from 2008.  Either plan sponsors have more important things to do or they do not believe that switching providers will solve any problems or significantly improve their retirement plan.  On the other hand, over 10% of plans are thinking of switching out their advisor, 83% of plans claim to use an independent advisor in December (the highest level over the past two years), and more than 10% of plans without an advisor are thinking of adding one.  Clearly sponsor focus has shifted to advisors, with savvy advisors focused on winning the mandate rather than advocating for record keeper change.

Though some providers have had a very good 2^nd half, almost none of the larger ones would claim that 2009 was a banner year.  Niche or entry level providers with relatively low assets or plans under management who grew significantly in 2009, especially those attached to larger financial service companies, might want to postpone the celebration party.  As they approach their larger competitors in size, they have to either slug it out with more well funded record keepers while fighting under their rules, or, if they are fortunate, they will have found a “blue ocean” strategy.  Clearly the puck has moved towards the goal of those advisors that have achieved “master” status – successful providers will have to figure out how to induce these advisors to work with them while maintaining high quality services and state of the art sponsor products.  Savvy advisors should be looking for providers focused on high quality customer service for advisors, commitment to the DC market, and flexible investment platforms especially QDIA’s and asset allocation strategies.  It takes time for “late to the advisor game” providers to understand and respect the business models of advisors, particularly when they don’t import outside talent at the top.  Advisors would be well served to align with record keepers on the right side of the inevitable consolidation.

¹ Percentage of plans that indicate they are currently searching or thinking of changing providers

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