Bigger is better - at least for defined contribution service providers.
More and more record keepers are joining forces, creating separate businesses dedicated to serving plan sponsors, according to Pensions & Investments 2000 Defined Contribution Service Provider survey. These efforts have met with uneven success.
"I think certainly scale will be one of the critical factors for success," said Peter Smail, president of Fidelity Employer Services., Boston. Larger service providers will be most successful in the future because they will be able to meet the growing demand by plan sponsors and participants for more services, Mr. Smail said.
"More and more, as account balances are growing, participants are looking for more and broader services. It's an escalation in demand for services," he said.
CitiStreet - a joint venture of State Street Global Advisors, Boston, and Citigroup, New York, - appears to be one of the success stories. Less than a year old, Quincy, Mass.-based CitiStreet ranks seventh among service providers ranked by sponsors it services and third among record keepers ranked by assets and participants, this year's survey reveals. While it does not have investment funds of its own, it does offer an array of investment options from its two parents. And it has clients in most areas of the defined contribution business, with a high volume of corporate 401(k) and 403(b) plans. The firm also is making plays in the burgeoning public defined contribution area. For example, in July, CitiStreet was one of the vendors - along with the Teachers Insurance & Annuity Association-College Retirement Equities Fund, New York; Aetna Financial Services, Hartford, Conn.; and American General Investment Management LP, Houston - selected for South Carolina's new State Optional Retirement Program for K-12 school teachers and administrators. Enrollment in the plan started Aug. 15.
In all, CitiStreet reported more than $200 billion in assets under record keeping from 16,562 plans.
Executives at each of CitiStreet's parent firms declined to comment, saying the joint venture is "too new."
Another joint venture, American Century/J.P. Morgan Retirement Plan Services, indicated an increase in assets under record keeping to $17.9 billion as of June 30 from $12.9 billion the year before. During the same period, the number of participants jumped to 438,433 from 303,983 in 1999. Of its 177 record keeping clients, 173 are corporate 401(k) plans, two are Taft-Hartley plans and two, 457 plans.
Executives say the firm is growing slowly as part of a "controlled growth" policy, said Jeff Garrity, chairman of American Century/J.P. Morgan. Company strengths are communication and education materials geared toward generating enthusiasm among plan participants and increasing participation in the plan, he explained.
Under this policy, the group expects to be able to take on between 20 and 30 plans per year with between $50 million to $100 million each in assets, Mr. Garrity said.
"With each prospective new client we ask, `Can we do this plan, and do we have the resources and the bandwidth, and what are the economics behind it,' " he said.
The joint venture is expected to stay in place even with the merger of Chase Manhattan Bank and J.P. Morgan, Mr. Garrity added. The executive committee remains the same, he said.
"There's been a re-affirmation by J.P. Morgan and American Century of the relationship and an endorsement that this is a business we would like to continue to grow," said Mr. Garrity, who is on the executive committee.
Indeed, the merger is expected to be a business advantage.
"There's little overlap between Morgan and Chase. It makes the opportunity so much larger," he said.
American Century/J.P. Morgan also has adopted a policy of enhancing its participant and plan sponsor websites every 30 days, Mr. Garrity said.
"To be successful and remain successful, you have to be innovative and use technology wisely with e-speed," he said.
In the past year, American Century/J.P. Morgan created a new group with Jim Charles, formerly a consultant with Watson Wyatt Worldwide, at the helm. The investment professionals do competitive analyses of the plans' investments, he said. They also create annual "client health indicators" to make sure American Century/J.P. Morgan is delivering the services plan sponsors expect.
The group also offers template investment policies to plan sponsors as the basis of a draft policy, Mr. Garrity said.
In the future, American Century/J.P. Morgan will continue not only to focus on participation rates, but also on whether the plans it services are successful, he said.
"While participation rate is still important, a crucial inquiry for plan sponsors to track is what percentage of participants are on track to retire how they want and when they want," Mr. Garrity said.
In January, American Century/ J.P. Morgan expects to launch an asset allocation modeling tool created by American Century. American Century/J.P. Morgan will offer the education and investment advice software to all of its retirement plan sponsors in a form that will allow them to provide it to participants with or without the advice component, Mr. Garrity said.
In March, American Century/ J.P. Morgan executives intend to offer plan sponsors a version of online banking developed by J.P. Morgan.
The web bank "will meet needs beyond retirement planning and asset allocation, wealth management," Mr. Garrity said.
Both features are up and running today but are being "wired" to be offered through retirement plans, he said.