Industry Insight from Fred Barstein
Taking Advantage in Times Like These

WARREN BUFFET RECENTLY wrote in an October 16, 2008 NY Times Op-Ed piece that when people are greedy, it’s time to be fearful but when people are fearful, it’s time to be greedy.  It’s hard to keep your head about you looking for opportunities when there is one piece of bad news after another.  Indeed the 401kExchange Opportunity Index which tracks plan sponsor likelihood to change is at an all time low, bottoming out at 2.5% in February compared to norms as high as almost 10% just over 3 years ago.  So where are the opportunities?

While only 2.5% of sponsors are likely to change record keepers, 11.6% of sponsors with advisors indicated that they are likely to switch out their advisor.  Blind squirrels are nowhere to be found as they are bombarded with hostile calls from their individual investors and interpret the fact that their plan sponsors are not bothering them as a sign of satisfaction.  Meanwhile, sponsors are performing triage with their participants who are afraid to even open their statements and are looking for someone to blame.  Experienced retirement advisors who at least show up to answer questions are in demand.  Many experienced advisors are picking up business at a prodigious rate even while their revenue declines, but those with capital and staying power will benefit in the long run.

Record keepers who are concerned about the growing difficulty in getting sponsors to focus on a record keeper change should take heart.  For providers like Hancock having record sales years in times like these, the outlook is rosy.  Now is the time to push their advantage against weaker rivals whose retirement business is suffering or whose parent company is struggling in this credit crisis.  Though everyone’s revenue and profit is down, stronger providers able to do well in this market are infinitely better positioned than their struggling counterparts where long term planning does not go beyond the current quarter.  Remember, there was a 30% drop in overall sponsor satisfaction in 2008 and those same disenchanted sponsors will be looking to dump their current provider when they feel confident enough to focus on their retirement plan.  For investment managers, especially those not already popular in the DC market or whose 2010 fund did not blow up, there are opportunities.  Though it is harder than ever to get new placement on record keeper platforms, advisors and sponsors are open to if not looking for alternatives.  Without an entrenched DC sales force, IO’s looking to gain share in the DC market can distribute more creatively without alienating anyone.

Though no one with an ounce of sense is actually predicting when the stock market will stabilize or recover, everyone sees the wisdom of being a player in the DC and especially the 401(k) market.  The spoils will go to those with the intellectual and financial capital not just to weather the storm, but who can actually take advantage of weakened and distracted competitors.  Opportunities like this do not happen in good times.

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