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 Industry
Insight from Fred Barstein
February 401kExchange Opportunity Index Continues to Slide
THE 401KEXCHANGE OPPORTUNITY INDEX¹ continued its downward trend begun in 2006 sinking to historic lows in all markets in February 2009. Plan sponsors faced with falling profits, layoffs and tight credit markets are not likely to make a 401(k) record keeper change unless there is severe pain. Falling fund prices lead to uncertainty which is rarely conducive for making a decision. Overall, only 2.5% of sponsors appear likely to change vendors across all markets. On the other hand, 11.38% of sponsors with an advisor are thinking of changing or actively searching for a new advisor which is the highest it has been since we started tracking in April 2008. Over 40% more plans without an advisor indicated likelihood to switch record keepers than those with an advisor.
These are tough times for all providers but especially for marginal record keepers facing more layoffs and likely degradation of service. With sponsor satisfaction driven by the stock market, expect significant pent up demand for record keeper change when the dust settles. Whether by attrition or acquisition, predictions of only a handful of viable large national record keeper platforms could come true in the next three to five years as many asset mangers transition to investment only status. Meanwhile, smaller, niche record keepers, especially TPA’s with lower, transparent costs and lower cost structures will continue to thrive. More savvy and concerned sponsors will be driven to experienced retirement advisors where a switch is much less painful than with record keepers. Market share of direct sold plans will continue to slide in the $100 million and below market as direct sold providers, especially in the smaller markets, move to work more closely with advisors as plan sponsors look to hire an biased investment professional available to answer questions from bewildered and frightened participants.
¹ Percentage of plans that indicate they are currently searching or thinking of changing providers
MICRO MARKET (<$1 MILLION) YTD |
YEAR |
2006 |
2007 |
2008 |
2009 |
% PLANS IN PLAY |
8.07% |
6.68% |
4.92% |
2.74% |
# PLANS IN PLAY |
5,297 |
4,384 |
3,228 |
1,796 |
Inc/Dec Prev. Yr (%) |
-17.7% |
-17.2% |
-26.4% |
-44.4% |
SMALL MARKET ($1-$10 MILLION) YTD |
YEAR |
2006 |
2007 |
2008 |
2009 |
% PLANS IN PLAY |
7.76% |
5.92% |
3.94% |
2.46% |
# PLANS IN PLAY |
1,248 |
952 |
633 |
396 |
Inc/Dec Prev. Yr (%) |
-20.2% |
-23.7% |
-33.5% |
-37.5% |
MID MARKET ($10-$100 MILLION) YTD |
YEAR |
2006 |
2007 |
2008 |
2009 |
% PLANS IN PLAY |
11.33% |
4.88% |
3.60% |
2.59% |
# PLANS IN PLAY |
249 |
107 |
79 |
57 |
Inc/Dec Prev. Yr (%) |
-27.2% |
-51.1% |
-30.9% |
-30.1% |
TOTAL MARKET (<$1 BILLION) YTD |
YEAR |
2006 |
2007 |
2008 |
2009 |
ASSETS |
$17,256,917,570 |
$13,096,061,925 |
$ 7,763,851,248 |
$4,597,620,998 |
ASSETS % INCREASE/YR |
-28.0% |
-24.1% |
-40.7% |
-40.8% |
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