Industry Insight from Fred Barstein
November Opportunity Index

Good News for Advisors and IO's, but not Record Keepers

Record keepers must be wondering if they threw a party whether or not any plan sponsors would show up, as the November 401kExchange Opportunity Index¹ for them is at historically anemic lows.  Less than 3% of plans are thinking of changing or actively searching for a new record keeper in all markets under $100 million in assets; every market segment is 40% off 2008 YTD figures, with the exception of the Mid-Market ($10-$100 million) which is off by 50%.  Meanwhile, in what seems like another universe, there is a nice upward trend for investment providers going into the end of the year with over 6% of plans thinking of changing or adding funds.  On top of that the appetite to change advisors is over 11%.  Reaching all time highs, almost 82% of all plans under $100 million indicate that they are using an advisor on their plan, and just about 9% without an advisor are thinking of adding one.

So what if this “trend” of fewer plans changing record keepers since 2006 is not a trend, but the status quo?  How should providers react?  This “trend” is not bad news for record keepers with significant market share, a niche with high margins, or ones with a TRO business; advisors should be wary of the “other” record keepers who are likely to sell or exit the business.  While the more successful record keepers are lamenting lower sales, everything is relative; in fact even with lower sales, they are distancing themselves from weaker competition.  On the other hand it’s good to be a successful IO with the barriers to entry growing, but it’s even better to be an advisor, especially a “Master Retirement Advisor” who has more than 25 plans or $100 million under management.  The market is fluid for advisors and their leverage over IO’s and record keepers has never been higher.  Rather than aligning their strategy around plan sponsors, record keepers should be creating a sales, marketing, and even business model around these advisors.  Convincing the “Masters” to consolidate their disparate book created as a result of a five year advisor of record trend will yield better results than hammering sponsors who seem to be focused on anything other than switching record keepers.

¹ Percentage of plans that indicate they are currently searching or thinking of changing providers

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