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 Industry
Insight from Fred Barstein
401(k) Services Becoming Even More Commoditized
EACH
YEAR, 401KEXCHANGE surveys plan sponsors asking, among
other things, what their provider could improve upon and
what they do best. In order to get an idea of the reasons
that cause change, we extrapolated the results from the
almost 3,000 plan sponsors in 2007 who indicated that they
were thinking of changing or actively searching for a new
record keeper (“active sponsors”). The results show that the
401(k) market is has become commoditized as the most cited
reason for dissatisfaction continues to be fees. When
multiple vendors offer the same services at relatively high
levels of quality, which is the definition of commodity,
price predictably becomes the main issue.
In all seven
areas of service (see chart below), fewer of the “active
sponsors” were dissatisfied with all areas of service as
compared to 2006 results but fees showed the lowest decline
at just -1.4% while fund performance showed the largest
decline as a reason for dissatisfaction at -22.9%.
It
appears that among active sponsors, investment related
services are becoming less of an issue though fund
performance continues to be the third most popular reason
for dissatisfaction.
Overall, record keeping was the least cited reason
for dissatisfaction at 15%, while fees were overwhelming the
most popular reason for dissatisfaction at 71%, followed by
employee education at 51%. The percentage of active sponsors
noting room for improvement on investment performance,
customer service, investment options and administration
ranged from 24%-30%.
Predictably
fewer larger plans are dissatisfied with fees with the Mid
Market, showing the greatest decline from 2006; Micro Market
plan dissatisfaction with fees actually grew 3.2%. The
percentage of active Mid Market sponsors dissatisfied with
record keeping shrunk by 42% from 2006 to a low of 12% in
2007; overall even the active Mid Market sponsors were hard
pressed to find reasons for dissatisfaction as compared to
2006, proving that it is becoming harder for providers to
compete in larger markets. With the 1st Quarter 2008
401kExchange Opportunity Index (percentage of active plan
sponsors) dropping precipitously and fewer reasons for
dissatisfaction, only the most hardy of record keepers can
survive the double whammy of declining assets and a price
squeeze.
|
|
<$1 Million (Micro) |
$1-$10 Million (Small) |
$10-$100 Million (Mid) |
All Assets |
|
|
2007 |
2006 |
2007 |
2006 |
2007 |
2006 |
2007 |
2006 |
|
Fees |
76.9% |
74.6% |
68.9% |
71.8% |
61.5% |
64.5% |
71.4% |
72.4% |
|
Inc/Dec 2006/2007 |
3.2% |
|
-4.1% |
|
-4.6% |
|
-1.4% |
|
|
Education / Communication |
57.9% |
59.9% |
47.2% |
51.3% |
40.4% |
50.7% |
50.8% |
54.7% |
|
Inc/Dec 2006/2007 |
-3.3% |
|
-8.0% |
|
-20.4% |
|
-7.1% |
|
|
Fund Performance |
34.5% |
41.9% |
28.2% |
38.4% |
26.4% |
35.5% |
30.6% |
39.6% |
|
Inc/Dec 2006/2007 |
-17.7% |
|
-26.4% |
|
-25.4% |
|
-22.9% |
|
|
Customer Service |
29.5% |
30.6% |
28.9% |
28.6% |
24.5% |
31.5% |
28.9% |
29.7% |
|
Inc/Dec 2006/2007 |
-3.6% |
|
0.8% |
|
-22.2% |
|
-2.8% |
|
|
Investment Options |
25.1% |
29.2% |
20.6% |
26.1% |
18.8% |
24.1% |
22.4% |
27.3% |
|
Inc/Dec 2006/2007 |
-14.1% |
|
-21.0% |
|
-22.3% |
|
-18.1% |
|
|
Plan
Admin |
25.0% |
27.9% |
23.2% |
27.9% |
19.7% |
28.1% |
23.7% |
28.1% |
|
Inc/Dec 2006/2007 |
-10.3% |
|
-16.8% |
|
-29.8% |
|
-15.5% |
|
|
Record Keeping |
14.6% |
17.5% |
16.3% |
18.2% |
12.0% |
20.7% |
15.4% |
18.0% |
|
Inc/Dec 2006/2007 |
-16.3% |
|
-10.2% |
|
-41.9% |
|
-14.2% |
|
|
Notes Percentage of Active Plan Sponsors that Cited
Reasons for Dissatisfaction |
|
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