Industry Insight from Fred Barstein
January Opportunity Index - Cold Weather Pattern Continues

While record keepers might hope that more plan sponsors would be searching for a new vendor, or at least likely to do so, the January 2010 401kExchange Opportunity Index¹ shows that the low turnover rate from 2009 continued into 2010.  In fact, just 2.39% indicated the likelihood to change record keepers this past month compared to 2.47% for all of 2009 across all markets.  Regardless of this low, more sponsors than ever are likely to hire a new advisor at 12.14%, which is up from 11.13% in 2009.  84% of plans indicate that they are using an advisor, up from 73.35% last January, and 13.30% without an advisor are thinking of adding one, up from 10.64% in 2009.  This past month, 7.99% of plans were thinking of changing or adding fund options as compared to 6.60% last year.  Diving deeper into the numbers, the greatest opportunity for advisor change is in the Micro Market (<$5 million) at 13.03%, and the best markets in January for IO’s were the Small ($1-$10 million) and Mid ($10-$100 million) Markets at 9.44% and 11.11% respectively.

Obviously, these are good times for experienced advisors, entrenched IO’s with good performance, and record keepers who continue to buck the trend and sell new plans.  All but the very large and relatively small niche record keepers should be looking to exit the business, but recent market increases and denial are keeping many around longer than they should be.  Technology and increased efficiency will continue to drive down costs, but deflation and fee disclosure will also drive down prices perhaps at an even greater rate.  The larger record keepers boxed into one or two market segments must bust out by growing through either innovation or acquisition.  Only Fidelity, ING, and Principal have significant market share from the very smallest to largest segments, as well as Great West, if you include 403(b) and 457 plans.

Experienced advisors should be pushing their advantage while the market is still rife with blind squirrel plans, just as today’s successful record keepers took advantage of weaker, poor service competitors 5-10 years ago.  Though much more fragmented, in 3 years the percentage of blind squirrel plans will greatly diminish from an estimated 80% today, leaving less easy pickings for the Master and PhD retirement advisors.

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

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