Industry Insight from Fred Barstein
August 2010 401kExchange Opportunity Index

The very largest and smallest 401(k) plans were good spots for record keepers in the August 2010 401kExchange Opportunity Indices¹, but only the large market really showed any signs of recovery for record keepers.  Overall, fewer than 2% of plans are likely to change record keepers.  Meanwhile, demand for advisors at almost 13.5% remains red hot with the appetite for new funds remaining very strong at almost 8%.  Over 80% of plans with under $100 million indicated that they are using an outside advisor, and almost 12% without one signaled that they are likely to add one.

The market faces an interesting dilemma.  Though sponsors are clearly more likely to change their advisors and fund line-ups, the real power still lies with the record keepers.  No distribution network controls a significant percentage of the market and Investment Only (DCIO) providers are just along for the ride though they are paying the fare.  With price pressure and more fee disclosure coming, record keepers do not seem able to press their advantage other than those with proprietary target date funds and the very few capturing rollovers.  While a frontier mentality exists among experienced advisors, especially The Elite 5000 (at least 10 plans, $30 million, and 3 years experience), record keepers are living in a staid, commoditized world and DCIO’s are somewhere in the middle with 6% points separating each party in the 401kExchange Opportunity Index (RK’s 2%– IO’s 8% - Advisors 13.5%).  Each one needs the others yet no one can take over alone.  Perhaps it’s time for the clear winners, who are not hard to identify, to cooperate in a sincere effort to help Americans prepare for retirement?  Would that make too much sense?

¹ Percentage of plans that indicate they are currently searching or thinking of changing record keepers, funds or advisors

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