MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication
an InvestmentWires' Publication
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MutualFundWire.com
The insiders' edge for 40 Act industry executives!
an InvestmentWires' Publication |
|
Thursday, May 25, 2000 Opportunity in 401ks? Even as the NASDAQ is roiled and day-traders shift money to and fro in their OneSource accounts, more fund families are eyeing the 401(k) market with envious eyes. The conventional wisdom holds that 401(k) money is "quiet" money, and there is a lot of it up for grabs. There may well be a lot of 401(k) money out there, but it is becoming increasingly hard for fund companies to grab it if they do not already have a presence in the market. A new report released by the Spectrem Group shows that the defined contribution market (covering 401(k) plans, 403(b) plans, 457 plans and other savings plans) continues to grow in value, yet vendors in the business will find growing their own share harder. First the good news. Spectrem pegs the size of the defined contribution market at $2.4 trillion at the end of 1999 -- or roughly half of all corporate retirement assets. 401(k) plans account for more than $1.4 trillion according to the study. The research also found that mutual funds continue to increase their share of the market in this space. Mutual fund providers now control 39% of full-service plans, Spectrem found. Still, the large size of the market should not cause asset managers and other plan providers to think that the pickings are easy. Plan sponsors are showing an increasing reluctance to change vendors and in all but the under 100 employee market the business is "take away" only, according to Spectrem. Only two percent of plan sponsors report that they would definitely change vendors if they were offered a 15% cut in the fees that they pay. "As long as basic competencies are demonstrated by the service provider, most plan sponsors are hesitant about undergoing a plan conversion, even for a lower cost," said Gerry O'Connor, Spectrem's Retirement Research Program Manager. This means that, in the mid-sized plan market, fund companies are captive to the provider of recordkeeping services. Because of the expense of providing and maintaining a recordkeeper platform, the number of vendors in this area has been shrinking. The end result is that fund companies are finding that they must pay increased fees in the form of revenue sharing to the full-service vendor offering the plan. Further, since there is little turnover among plan providers there are also few opportunities to grab significant assets in an established plan. Fund companies may find that they are added as a new option, and only slowly gather assets. Spectrem highlights the small plan market as one source of growth for new plans. Only 20% of the less than 100 employee market now offers a plan, according to Spectrem. Yet the small plan market has until now been dominated by insurance companies selling annuity-based products. These providers also tend to offer a limited selection of outside funds to their clients. Even the Internet may not offer immediate hope for fund companies looking to storm the 401(k) walls. Last Fall, Fidelity opened up the under 100 employee market with a new all-Web 401(k) plan. Yet it offers only 25 Fidelity funds as investment choices, once again leaving other fund companies in the cold. Printed from: MFWire.com/story.asp?s=25715 Copyright 2000, InvestmentWires, Inc. All Rights Reserved |