Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. Print
July 21, 1997 01:00 AM

OTHERS' VIEWS: WHAT EVER HAPPENDED TO THE 401(K) MARKET?

Elmer Rich
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The 401(k) market has matured into a classic winner-take-all market with increasing plan sponsor power. But it is a frustrating win, as sponsors find shrinking choices in the marketplace.

    As power shifts from the sellers, especially large mutual fund companies and other providers of bundled services, selling and marketing to the current 401(k) market has become increasingly unproductive.

    Surveys by my firm show only 2% to 4% of existing 401(k) plans will be changing service providers at any given time.

    In some markets the percentages are even smaller. Informal reports from a survey of California show a percentage too low to measure.

    This apparent trend already has started to have a broad impact on plan sponsors and providers. Paradoxically, as plan sponsors are looking for more options, products are being removed from the marketplace.

    As this often-predicted industry consolidation gains momentum, 401(k) providers' traditional sales and marketing efforts are becoming increasingly ineffective. Providers are caught between plan sponsors who are seeking more customized programs and rapidly shrinking new business opportunities. New product, marketing and sales strategies are being reworked or abandoned.

    New market data is coming from large samples of direct, person-to-person interviews of plan sponsors where they report their satisfaction with their current providers.

    This tendency is gaining confirmation from different sources. LRP Market Research, West Palm Beach, Fla., in its 401(k) MarketSource report, which conducted more than 60,000 interviews with plan sponsors, found 5.8% of plan sponsors are unhappy and actively searching for new relationships. This percentage might be decreasing.

    Separately, Marketing Decisions Inc., Waltham, Mass., reports a 2% to 4% prospect rate in recent surveys. Spencer Harvey, an MDI vice president, reports, "Our clients in the 401(k) business are finding it difficult to deliver a differentiated message to the marketplace. Unless the plan sponsor is feeling a high degree of pain in their existing provider, there is little incentive to switch."

    John Mulligan, president of Retirement Plan Strategies, Braintree, Mass., asserts, "The market is the most mature in the large corporate segment, where more and more there are negotiations for shared relationships among providers instead of firings and new hirings for bundled providers."

    Still against the hope that the challenging new business environment is an anomaly of current conditions, additional data on plan sponsors' satisfaction with their existing providers suggest the low plan sponsor change rate has become a long-term trend of the market. Typically, well over 90% of plan sponsors say they are happy and staying put.

    Attempts by 401(k) providers to enter this market or gain significant new business are daunting.

    The positive trend hidden in this data is the shift in power from providers to plan sponsors who increasingly are dictating terms or simply staying put. At my firm, we work with plan sponsors who want to significantly improve their plans. They look over their shoulders daily, as the bull market continues to mark new highs, and get nervous. But they are short-staffed and too stretched for resources to meet growing government and employee demands - they need to outsource.

    Plan sponsors may be frustrated, however, as stalled growth at 401(k) provider firms hampers innovation to meet their needs. There is not enough new business to be a base for new ideas.

    Stalled sales at 401(k) providers are an indication that innovation and new products may be slow in reaching plan sponsors. Informal reports suggest sponsors are seeking more diversification in investments, services and providers.

    A chief financial officer recently said she wanted a new provider but did not want to be a "small fish in a big pond." She might find that wish challenged by a shrinking pool of providers as many exit the business, limit reinvestment or narrow their service offerings.

    Providers may be successful if they shift to accept more modest sales growth and competing at the margins. This helps avoid either the plan sponsor or provider's sales person wasting time "off target."

    Astute plan sponsors, who recognize their growing power in the marketplace, are rejecting generic packages and negotiating tougher.

    These "street smart" plan sponsors know that even with many companies offering services, only one or two will really deliver a customized package. At the same time, better buying information is becoming available to plan sponsors. LRP plans to produce a plan sponsor 401(k) "consumer guide."

    Some providers are leaving the market, but plan sponsors and their employees cannot exit.

    Sponsors are migrating into specialized segments with special needs and service goals. Providers willing to get their hands "dirty" by delivering on the details will win.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    Citadel's Ken Griffin gives $125 million to Chicago museum; name will change
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing