Industry Insight from Fred Barstein
July 2010 401kExchange Opportunity Index

The July 2010 401kExchange Opportunity Indices¹ showed some signs of recovery for record keepers, but the market has never been so good for serious Defined Contribution (DC) advisors.  The RK Index for the Mid Market ($10-$100 million) spiked to almost 3% in July up from less than 1% in June 2010 and July 2009; other markets remained consistent with the Micro Market (<$1 million) at the same levels as 2009 YTD.  On the other hand, 13.36% of plans with an advisor were actively looking for or thinking of changing which is 20% higher than 2009 figures and the highest level since we started tracking.  Similarly, 85% or 10% more plans with less than $100 million in assets are using an advisor as compared to July 2008 and 13.59% of those without an advisor are thinking of adding one, again the highest ever seen, up 30% from 2009.  The question we are hearing consistently, even from some predominantly direct sold providers, is “Why would a plan not hire an advisor?”.  Fund searches are slowly slipping since their high of 9.42% in February down to 7% which is just slightly better than 2009 YTD figures.

While there were signs of hope for record keepers, the percentage of plans in play is way down from 2005, yet many providers are having banner years.  While fewer plans may be looking to change record keepers, they rarely make the decision anyway.  Advisors, proliferating in the $100 million market and creeping up market, make that call.  While the really good ones are busier than ever and will not switch record keepers without good reason, they understand the nuances between record keepers better than plan sponsors and recognize when a provider is “over their skis”.  In a perfect world, 80% of an advisor’s plans would be with three record keepers, yet the increase of advisor of record changes has skewed those numbers.  Opportunities exist for providers who can offer advisors a better solution and help make the transition painless.  In addition, there are more plans fueled in part by the payroll companies and fewer record keepers compared to 2005, the high water mark for provider searches.  So even though the percentages are down, the market is bigger and the competition is thinner with more discerning buyers.

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