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April 29, 1996 01:00 AM

EXPERTS CITE CHANGES, HOW TO DEAL WITH THEM (PART 6/11)

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    Continued from page 26

    to talk about strategy and how it looks and all those things."

    It's beginning to smell like a DB plan in terms of the way we're servicing the investment component. In those cases there may be opportunities for a DB-DC link. At the same time, you see the DC people moving into the DB people's market. Some forward-looking DC providers who had focused on DC may be kind of going the other direction.

    MR. PEYTON: It's very true that defined contribution is a moving target, and the industry has been evolving. Structures are going to change, and there's going to be a shake-out at certain points that will create opportunities for those not already in.

    One opportunity I can see is a major market decline that could create some opportunities to compete against the traditional providers who will have provided some disappointment to their investors.

    The defined benefit market by no means is dead. It's a mature market, maybe. But who has a very large percentage of it? And the defined benefit plan sponsors are constantly looking for a better mouse trap, a better investment manager, a better vehicle. For those firms who already are in that area, that choose to compete in that area, there's plenty of market share to be had.

    In defined contribution where for various reasons organizations have huge market shares, those market shares are open for grabs for the enterprising, high-quality, service-minded firm that sticks to its knitting, does what it does best and uses others to do what it can't do as well.

    P&I: There is a perception out there that it is much more difficult for a plan sponsor to change DC providers that he has marketed to his employees as the best available.

    MR. PEYTON: I don't think the sponsor is going to say to the participant: "Sorry, we were wrong. They're not the best." I think the participants are going to say to the sponsor: "I think you were wrong. We demand something else." I think that's the way it will work.

    If you look at the composition of the investment committees and the due diligence work that's done on the DB side vs. the DC side, there's a horrible contrast between the two. One has a defined set of guidelines and risk parameters and they've done searches and due diligence not only on the fund family but the individual investment portions. On the DC side they've decided to do business with providers and hardly any due diligence has been done on the funds themselves. There are no guidelines or policies and there's no real monitoring in place.

    MR. KNUPP: If either the plan sponsor comes to the conclusion that it has made a mistake in selecting funds for a 401(k), or if the employees believe the sponsor has made a mistake, there's a serious problem there because of the complexity of change.

    That's the reason you see organizations like Fidelity stepping forward and changing 26 fund management positions this year. They're not going to allow either side to feel abuse. They're going to correct the problem.

    MR. EAGER: I guess our view is they're trying to ward off what we think may be happening and that is the increased likelihood that there will be change. You ward that off. They own the client. That's going to be the key in the equation.

    Profit in the industry is going to shift from the manufacturer side to the distribution side. They've got that figured out. They own the client, and they're going to control the client. If it means today in 1996 they have to allow other investment options in, they're going to do that rather than be forced out.

    MR. RITTENOUR: I agree. Here's Fidelity, the largest asset gatherer along with Vanguard in the 401(k) market. Why would they be offering other providers and options when they already have 40-some funds? I think Dave is exactly right.

    MS. DEBATIN: The other thing we haven't addressed, and I hear this quite a bit, is that name recognition is important to 401(k) participants.

    It's OK to have a Fidelity fund

    (continued)

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