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 Industry
Insight from Fred Barstein
How to Identify the Winners -
401(k) Record Keepers
The decline in plan sponsor
appetite to change record keepers has dropped at a
steady rate, not in spikes, which makes it likely that
we will not see a dramatic increase any time soon.
Meanwhile, many of the
larger more established record keepers are having record
years; that means the rich keep getting richer while the
rest are suffering.
For this reason, picking
the winners among the 40 or so larger national record
keepers becomes even more important.
Here are some things to
look for:
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Participants and Assets under Management
– More is better. Obviously
these factors generate revenue which sometimes, not
always, leads to profits.
The number of plans is much less important and in
some cases more is not better.
Higher average account balances are the key
factor.
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Revenue and Profit
– Not many record keepers break out or disclose this
information. Even
if they do, how can you trust the numbers unless they
are audited?
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Growth
– Is the provider growing more than the market average?
Do not be fooled by increases in assets due to
market growth.
-
Business Growth
– Are they hiring or firing?
Sales people are the last to go so a decline in
sales forces is not a good sign although not necessary
terrible. Ask how
much the provider is spending on technology, which is
important to keep up services and help reduce costs in a
deflationary market.
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Pricing
– If a record keepers prices are much higher or lower
than their competition, then there could be serious
issues.
-
Corporate Strategy
– Is the 401(k) business important to the overall
corporate strategy?
Asset managers like the 401(k) record keeping
business because it flows funds, but even managers like
MFS decided to sell their record keeping division.
Schwab’s focus on capturing rollovers, for
example, means they are less likely to exit.
-
Senior Management
– There are three factors to consider:
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Wholesalers
– For most advisors, the only meaningful interaction
they have is with their wholesaler who is the giraffe at
the watering hole with the best perspective.
If your wholesaler is good, meaning in the top
quartile in sales within their organizations, and either
stops aggressively selling to you or leaves the company,
chances are that something is wrong.
While it is hard to predict the when and who, there will be
significantly fewer national record keepers in three years.
Advisors who can steer their clients clear of the
record keepers without a seat in this game of musical chairs
will be much appreciated and will avoid the headaches of
having to go through painful and time consuming transitions.
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