IT’S HARD TO walk outside after a tsunami or hurricane and be optimistic or focus on what is left standing rather than all the wreckage.  But after the wild ride in the financial services industry last week that saw mighty firms humbled and shook even the most knowledgeable people to their core, the 401(k) and Defined Contribution markets looks very attractive and will continue to draw more attention and investments.  Most interesting is that transparency, which has become almost a maniacal fixation of our industry, is taking on new meaning and importance.

Part of the problems in the current crisis is the lack of transparency of many of the investments.  The lack of transparency, once touted as an advantage for hedge funds, has become a problem and certainly the derivatives markets and naked short selling have come under scrutiny with many predicting that the government will start regulating them.  Many defined benefit plans which grew weary of the old fashioned mutual funds, are feeling a pinch as the hedge funds, private equity firms and more exotic investments are, at best, worth less than they are marked at, and, at worst, have no value.  It’s unlikely that beneficiaries will be sympathetic when their monthly payments are due.

The DC market, on the other hand, looks like an area relatively untouched by the storm.  The assets held in the plans for the most part are worth what the daily valuation systems tells us even though there are less of them.  And though participants are feeling squeamish, they might want to call Lehman employees and investors to see if they would like to trade places.  Larger companies will shift focus from DB plans which forces them to make bets on what will happen in 30 years when no one is sure what’s going to happen next week.  Advisors should be looking at the opaque and pooled investments like general accounts at insurance companies, money market funds and even asset allocation funds to determine if there are any surprises waiting although it looks like the government will prop up the money market accounts.  Some firms are being proactive - at a client conference last week, a large insurance company announced unprompted that their almost $100 billion in their general account had about 1% in bad paper.  We should all be more skeptical about guaranteed income products that is the next “new new” thing in our industry and consolidation will be hastened as weaker firms are forced to sell assets and those with healthy balance sheets see an opportunity to buy into a relatively stable and transparent industry.

Plan sponsors have never been more willing to meet with a new advisor who has some answers about how to weather with these troubling times.  Over 80% of all plans with less than $10 million either do not have an advisor or do not have a knowledgeable one that visits with the sponsor and their participants regularly.  Experienced advisors have never had a greater opportunity to show their value and while they may not have all the answers, they can at least be available to take the questions.