Title: The Outlook for Banks in the 401(k) Business
Abstract: An expert's views on where opportunity does and does not lie battle for market share is over, says 401(k) guru Robert G. Wuelfing. If you re not one of the top 25 players, you should stop chasing market share and start concentrating on profitability and return on investment for the book of business you have. combined market share of the top 15 401(k) asset managers is 42%, points out Wuelfing, who is president of Access Research Inc., Windsor, Conn. top 25 control 61% of all the revenue. It's getting awfully late to buy your way into that top 15 or top 25, he says. This year, four banks are among the top 25 providers of these tax-sheltered, defined-contribution plans, according to Pensions and Investments' May 15 ranking of the largest managers of 401(k) and 457 assets. Bankers Trust is number two, with $39 billion under management; State Street Bank is third with $29 billion; Wells Fargo Nikko is seventh with $20 billion (this subsidiary is due to be sold to Barclay's); and NationsBank is ranked 22nd with $8 billion. In total, banks claim 27% of 401(k) market share. Mutual fund and insurance companies fill the rest of the list. Insurance companies continue to have the largest market share in 401(k)s--32%, Wuelfing says. Mutual fund companies are the fastest-growing segment; they edged past banks in 1994 and now have 28% of the There's been some outstanding marketing by Fidelity, T. Rowe Price, Vanguard, and a few others, Wuelfing explains. The entire [mutual fund] industry is benefitting from the marketing and performance of five key players. Where the money is Wuelfing projects that in 1995, $60 billion of new assets will come into 401(k) plans, bringing the total from $525 billion to $585 billion. Roughly 60% of this will come from companies with more than 1,000 employees, 14% from companies with fewer than 100 employees, and 20% from companies that are in between. 401(k) assets will top a trillion dollars early in 1999, Wuelfing predicts. Total revenue from asset management and billed service fees this year should be $3.9 billion, he estimates. Wuelfing estimates that the actual cost of providing 401(k) services exceeds the fees the providers receive by 15%. He predicts that this year service providers will spend $940 million to collect $810 million in recordkeeping and administrative fees from plan sponsors. profit--an estimated $3 billion in 1995--is in asset management, and since most providers do both recordkeeping and asset management, the asset management side subsidizes the recordkeeping side. We are still seeing very attractive margins on an aggregate basis in this business of 11% to 12%, he says. Keep the costs down Such profits and the increasing popularity of 401(k)s tempt some providers to close all the new business they can. That only works in the short term, Wuelfing says. Organizations need to match their technology design to their target market. This takes discipline in marketing and operations. For example, if a bank's 401(k) back office is set up in such a way that its most efficient processing business comes from small companies that send and use information on diskettes, then the bank should focus on those companies and walk away from those that can't meet its technology requirements. …
Publication Year: 1995
Publication Date: 1995-11-01
Language: en
Type: article
Access and Citation
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