|
 Industry
Insight from Fred Barstein
March 2008 401kExchange Opportunity Index Lowest in Over
Nine Years
More than a short-term trend, the precipitous decline of the
401kExchange Opportunity Index¹ is indicative of a new era
in the 401(k) market. With more open investment platforms,
higher levels of satisfaction service and very little
distinguishing the larger record keepers’ features, sponsors
are hard pressed to find compelling reasons to change
vendors. For all markets, March 2008 marked the lowest
incident of 401(k) plan sponsors likely to change record
keepers over the past nine years. All markets are off
significantly YTD led by the Large Market ($100mm-$1 bn)
declining 73% from 2007 YTD. The March 2008 Micro Market
(<$1mm) is down 100% from last March and off almost 200%
from its peak in 2004. Likewise, the Small Market ($1-$10mm)
is down 62% from last March and 141% from its 2004 March
high; the Mid Market is off 43% from last year and almost
200% from the best results which occurred in March 2005.
Opportunities
abound for advisors with sponsors sold direct and without an
unbiased advisor to help them conduct meaningful fee
disclosure, due diligence, investment analysis and
participant education and advice. The many flaws of
retaining a blind squirrel advisor are becoming more obvious
with greater awareness and focus by sponsors on their 401(k)
plan. It is estimated that 25% of the Small and Micro Market
plans do not have an advisor, and over 80% of advisor sold
plans employ a blind squirrel. All in, over 85% of sponsors
with less than $10 million in plan assets are opportunities
for experienced retirement advisors. Likewise, Investment
Only providers have huge opportunities to work with these
experienced advisors to place their funds on current plan
menus using platforms where their funds are available.
Record keepers
looking to grow need to develop stronger relations with
experienced advisors and should try to acquire weaker
competitors. They would be wise to put a greater focus on
client retention looking to shore up plans sold by blind
squirrels many of which are hopelessly mispriced and totally
underserved. Finally, record keepers should be preparing for
the final frontier - the participant. No one can yet claim
that they have the data to prove that their participants are
better prepared for retirement, but those that distinguish
themselves from the pack will actually have something that
will get the attention and business of advisors and sponsors
alike.
¹
Percentage of plans that indicate they are currently
searching or thinking of changing providers
|
MICRO MARKET (<$1 MILLION) YTD |
|
YEAR |
2005 |
2006 |
2007 |
2008 |
|
% PLANS IN PLAY |
10.01% |
7.90% |
7.03% |
4.56% |
|
# PLANS IN PLAY |
9,850 |
7,772 |
6,922 |
4,490 |
|
Inc/Dec Prev. Yr (%) |
-2.0% |
-21.1% |
-10.9% |
-35.1% |
|
SMALL MARKET ($1-$10 MILLION) YTD |
|
YEAR |
2005 |
2006 |
2007 |
2008 |
|
% PLANS IN PLAY |
9.27% |
7.75% |
5.99% |
3.89% |
|
# PLANS IN PLAY |
2,239 |
1,870 |
1,446 |
939 |
|
Inc/Dec Prev. Yr (%) |
2.7% |
-16.5% |
-22.7% |
-35.1% |
|
MID MARKET ($10-$100 MILLION) YTD |
|
YEAR |
2005 |
2006 |
2007 |
2008 |
|
% PLANS IN PLAY |
14.46% |
9.93% |
5.62% |
4.04% |
|
# PLANS IN PLAY |
477 |
327 |
185 |
133 |
|
Inc/Dec Prev. Yr (%) |
38.0% |
-31.4% |
-43.4% |
-28.2% |
|
LARGE MARKET ($100 MILLION-$1 BILLION) |
|
YEAR |
2005 |
2006 |
2007 |
2008 |
|
% PLANS IN PLAY |
9.09% |
3.47% |
5.84% |
1.56% |
|
# PLANS IN PLAY |
59 |
23 |
38 |
10 |
|
Inc/Dec Prev. Yr (%) |
-28.8% |
-61.8% |
68.3% |
-73.3% |
|
TOTAL MARKET (<$1 BILLION) YTD |
|
YEAR |
2005 |
2006 |
2007 |
2008 |
|
ASSETS |
$39,283,599,858 |
$22,745,220,984 |
$21,991,197,723 |
$10,322,655,031 |
|
ASSETS % INCREASE/YR |
-7.7% |
-42.1% |
-3.3% |
-53.1% |
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