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 Industry
Insight from Fred Barstein
Factors Causing Hyper Change in the Retirement Market
AS WE
REVIEW the 401(k) market in particular and the
retirement market in general, there’s a general sense that
the market is changing at a rapid pace and that it will only
accelerate. Though we agree, we thought it would be
worthwhile listing some of the factors causing the changes
and briefly what the effects of each factor might have:
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Providers
whose parent are caught up in the credit crisis
will be more likely to sell or less likely to buy.
Though there are a few companies with extreme exposure,
the crisis has affected most everyone, if not their
balance sheet, certainly their appetite for risk.
-
The ever
declining stock market will expose record keepers
who have not reached “401kHeaven” defined by assets and
participants driven by brand and distribution. Look for
more record keepers in the red zone to surrender.
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Continued
focus on fee disclosure will cause more price
compression, squeezing weaker providers with outdated
pricing especially in the smaller markets.
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The
continued growth of TPAs, both record keeping and
non-record keeping, will push the large providers to
adjust. Technology will only get cheaper and both
sponsors and advisors will move towards the high-touch,
low-cost, open investment TPA model.
-
Emergence
of Investment Only (IO) providers will provide
another source of support and information to sponsors
and advisors. Until recently, only record keepers with
a specific agenda had any significant resources to
affect the market.
-
With
greater awareness about fees and liabilities by
sponsors, there will be fewer blind squirrels and less
direct sold plans in the smaller 401(k) market. Look
for a small group of elite retirement advisors to
emerge with a greater concentration of plans and assets.
-
The growth
of asset allocation funds (target date/risk
based) funds will push the industry towards a focus on
allocation rather than manager selection to achieve
alpha with an emphasis on lower cost building blocks.
-
As baby
boomers retire, advisors, record keepers and money
managers will fight over the assets. Right now Fidelity
and Edward Jones are the clear leaders.
While this list
of factors causing change is not comprehensive, it provides
a glimpse into why change is happening so quickly. Advisors
that understand these changes will be in a better position
to take advantages of the opportunities, assuming they have
the organization and capital necessary. The question
advisors should be asking is whether they are in their own
version of “401kHeaven” or on the road to it because the
alternative is not very pleasant.
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